Pennsylvania Payroll Compliance Guide 2026: Complete Employer Reference

Pennsylvania Payroll Overview

Pennsylvania sits in a distinct category: it has a state income tax, but the rate structure is simple (a single flat rate). The bigger compliance challenge for most Pennsylvania employers is the local earned income tax system. Pennsylvania has one of the most extensive local income tax networks in the country — hundreds of municipalities and school districts levy their own earned income taxes, collected through a system of local tax collection agencies under Act 32.

If your employees work in Philadelphia directly, you face an additional layer: the Philadelphia Wage Tax, which is separate from both the state income tax and the Act 32 local system. Philadelphia requires its own registration, its own withholding rate, and its own remittance process.

Pennsylvania has no paid family leave mandate, no mandatory paid sick leave (outside of Philadelphia under the city’s ordinance), and the state minimum wage has not moved above the federal floor. The primary complexity comes from the state income tax, UC system, and the multi-layer local tax structure.

Pennsylvania Payroll Taxes: 2026 Complete Rate Table

State Income Tax Withholding: 3.07% Flat Rate

Pennsylvania imposes a flat personal income tax of 3.07% on all Pennsylvania-source wages. Like Illinois, there are no progressive brackets — every employee pays the same rate. For a full-time employee earning $50,000, Pennsylvania income tax withholding amounts to $1,535 per year.

Withholding is based on the employee’s wages with no allowance system comparable to the federal W-4 or Illinois IL-W-4. Pennsylvania does not have an equivalent employee withholding certificate. You simply apply 3.07% to all Pennsylvania taxable wages.

What Counts as Pennsylvania-Taxable Wages

Pennsylvania personal income tax applies to compensation for services performed in Pennsylvania. For employees who work in Pennsylvania, all wages are generally subject to withholding. For employees who work in multiple states, you withhold PA tax only on the portion of wages attributable to Pennsylvania work, with reciprocity agreements providing relief in some cases:

• Pennsylvania has reciprocity agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. Under these agreements, employees who live in one of these states but work in Pennsylvania pay income tax to their home state only — not to Pennsylvania. To claim the exemption, the employee submits Form REV-419 (Employee’s Nonwithholding Application Certificate). You stop withholding PA tax for those employees.

PA Income Tax Filing and Deposits

State income tax is reported and remitted through the Pennsylvania Department of Revenue’s e-TIDES system (or the newer myPATH portal at mypath.pa.gov). Your deposit frequency is assigned based on total withholding liability. Large employers deposit semi-monthly or monthly; small employers may file quarterly. Annual reconciliation is done on Form W-2 and PA REV-1667 (Annual Withholding Reconciliation Statement).

UC Tax: Pennsylvania Unemployment Compensation

Pennsylvania calls its SUI the Unemployment Compensation (UC) tax, administered by the Pennsylvania Office of Unemployment Compensation (under LIBC). Pennsylvania’s UC system has a notable feature: employees also contribute to UC, unlike most states where SUI is employer-only.

2026 PA UC Rates

The employee UC contribution of 0.07% is withheld from every paycheck with no wage base ceiling. For an employee earning $60,000 per year, the employee contribution is $42. You withhold this from employee paychecks and remit it with your employer UC contribution quarterly.

UC Quarterly Filing

UC returns are filed quarterly through the Pennsylvania Office of UC’s online filing system at ucomp.pa.gov. The quarterly return reports total wages paid, employee wages by individual, employer contributions, and employee contributions withheld. Due dates are the last day of the month following each quarter end.

Local Earned Income Tax: Act 32

Pennsylvania’s Act 32 of 2008 created a standardized local earned income tax (EIT) collection system. Most Pennsylvania municipalities and school districts levy a local EIT on residents, typically ranging from 1% to 3% of earned income. As an employer, you are required to withhold the local EIT for your employees and remit it to the appropriate Tax Collection Agency.

How Act 32 Works for Employers

1. Determine the employee’s resident municipality: Ask each employee to provide their home address including municipality and school district on the Pennsylvania Local Earned Income Tax Residency Certification Form (available from the PA DOR)
2. Find the resident tax rate: Look up the combined municipal + school district EIT rate for the employee’s municipality at pa-taxcollectors.com or through the relevant Local Tax Collection Bureau (LTCB)
3. Find your work location tax rate: Also look up the non-resident rate for your business’s location
4. Withhold at the higher of the two rates: If the employee lives in a municipality with a 2% rate but works in a municipality with a 1% rate, withhold at 2%. If reversed, withhold at the work-location rate
5. Remit to the LTCB for your work location: The LTCB sorts out distribution to the employee’s home municipality

Philadelphia Wage Tax: Residents and Non-Residents

Philadelphia operates its own wage tax system entirely separate from the Act 32 local EIT system. If any of your employees work in Philadelphia or live in Philadelphia (and work anywhere), the Philadelphia Wage Tax applies.

2026 Philadelphia Wage Tax Rates

The Philadelphia Wage Tax applies to all compensation for services performed in Philadelphia. For Philadelphia residents who work outside the city, employers outside Philadelphia must still withhold the Philadelphia resident rate if the employee provides a Philadelphia home address. This surprises many employers whose offices are in the suburbs but who hire Philadelphia residents.

Philadelphia Wage Tax Registration and Filing

• Registration: Register with the City of Philadelphia Department of Revenue at philadelphia.gov/revenue before making your first wage payment subject to the tax
• Filing frequency: Quarterly for most employers (monthly for larger employers); remit through the Philadelphia Tax Center online portal
• Annual reconciliation: File Form W-2 and an annual wage tax reconciliation with the city by January 31

Wage Payment Laws and Final Paychecks

The Pennsylvania Wage Payment and Collection Law (WPCL) governs when and how employers must pay wages in Pennsylvania. It is enforced by the Pennsylvania Department of Labor & Industry.

Pay Frequency

Pennsylvania does not specify a mandatory pay frequency in the WPCL beyond requiring payment at regular, predetermined intervals. Most Pennsylvania employers pay weekly, bi-weekly, or semi-monthly. Whatever schedule you set, you must maintain it consistently. You must notify employees of the pay period schedule.

Final Paycheck Rules

Pennsylvania requires final wages to be paid by the next regularly scheduled payday for both terminations and voluntary quits. There is no shorter statutory window. However, the WPCL allows employees to file a civil claim for unpaid wages plus 25% liquidated damages and attorneys’ fees if you withhold wages without legal justification.

Accrued Vacation Payout

Pennsylvania courts and the WPCL treat accrued vacation as earned wages when the employer’s policy provides for accrual and payout. A “use it or lose it” policy is permissible only if clearly communicated to employees in advance. If your written policy says accrued vacation is paid out at separation, you must pay it — it qualifies as wages under the WPCL.

Allowable Deductions

Pennsylvania permits deductions from wages only for taxes required by law, court-ordered garnishments, and deductions directly authorized in writing by the employee for the employee’s benefit. Deductions for cash shortages, customer drive-offs (in retail/restaurant settings), or uniforms are permissible only with a specific written agreement and cannot reduce wages below minimum wage.

Overtime Rules

Pennsylvania follows the federal FLSA for overtime. Non-exempt employees are owed 1.5× their regular rate for hours over 40 in a workweek. Pennsylvania does not require daily overtime and does not have a different exemption salary threshold than the federal $684 per week.

The Pennsylvania Minimum Wage Act matches the FLSA on overtime. However, Pennsylvania’s state overtime regulations were expanded in 2020 to include previously excluded categories of workers. Confirm with your HR advisor whether any specific occupation exclusions from overtime apply in your industry.

New Employer Registration Steps

1. Federal EIN

Apply online at irs.gov/ein for immediate issuance.

2. Register for Pennsylvania Taxes (Enterprise Registration)

• Where: Pennsylvania Department of Revenue’s myPATH at mypath.pa.gov using Form PA-100 (Pennsylvania Enterprise Registration Form)
• When: Before your first payroll payment
• What you get: Pennsylvania Account Number for state income tax withholding; access to file and pay through myPATH
• What to select: Register for “Employer Withholding” and any other applicable tax types (sales tax, etc.)

3. Register for UC (Unemployment Compensation)

• Where: PA Office of UC at ucomp.pa.gov — use the online employer registration portal
• When: Within 30 days of paying wages to an employee in Pennsylvania
• What you receive: PA UC Account Number, new-employer rate confirmation, access to file quarterly UC returns

4. Register with Local Tax Collector (Act 32)

Identify the Local Tax Collection Bureau (LTCB) for your work location using the PA Department of Community & Economic Development (DCED) directory at dced.pa.gov. Register as an employer with that LTCB before withholding local EIT. Collect completed Local EIT Residency Certification Forms from all employees.

5. Register with Philadelphia (if applicable)

If you have employees working in or living in Philadelphia, register with the City of Philadelphia Department of Revenue at philadelphia.gov/revenue before making your first Philadelphia-subject wage payment.

6. Pennsylvania New-Hire Reporting

Report all new hires to the Pennsylvania New Hire Reporting Program at panewhires.com within 20 days of the hire date.

7. Workers’ Compensation Insurance

Pennsylvania requires workers’ compensation coverage for virtually all employers with one or more employees. Obtain a policy from a licensed carrier or qualify for self-insurance through the Bureau of Workers’ Compensation before the employee’s first day of work.

Pennsylvania Minimum Wage 2026

Pennsylvania’s minimum wage is $7.25 per hour, equal to the federal floor. Pennsylvania law ties its minimum wage to the federal rate. The state legislature has repeatedly introduced minimum wage increase legislation but has not passed it as of 2026. Pennsylvania remains one of a handful of states where the minimum wage has not exceeded $7.25 per hour.

Tipped Employees

Pennsylvania allows a tip credit of up to $4.42 per hour, reducing the direct wage for tipped employees to a minimum of $2.83 per hour. This is the federal tip credit plus the additional Pennsylvania component. Tips must bring total hourly compensation to at least $7.25. If tips fall short in any workweek, the employer makes up the difference.

No Local Minimums (Outside Philadelphia)

Pennsylvania state law preempts local minimum wage ordinances. Philadelphia passed a $15 minimum wage for city contractors but cannot set a private-sector minimum higher than the state rate. Pittsburgh attempted a local minimum wage ordinance that was struck down by the Pennsylvania Supreme Court.

Philadelphia Wage Implications

While Philadelphia cannot set a local minimum wage above the state floor for most private employers, the Philadelphia Wage Tax effectively raises the cost of employment in the city. A Philadelphia-based employee pays 3.75% city wage tax on top of 3.07% state income tax — a combined 6.82% in local/state income taxes before federal taxes. This drives employee compensation expectations in the Philadelphia market even when statutory minimums have not moved.

Pennsylvania Payroll Compliance Calendar 2026

Frequently Asked Questions

What is the Pennsylvania SUI rate for new employers in 2026?

New Pennsylvania employers pay UC tax at 3.689% on the first $10,000 of each employee’s wages per year, for a maximum of $368.90 per employee. In addition, you withhold a 0.07% employee UC contribution on all wages with no cap. Experienced employer rates range from 1.419% to 10.3918%.

What is the Pennsylvania state income tax rate?

Pennsylvania imposes a flat 3.07% personal income tax on all wages. There are no brackets. Withholding is 3.07% of gross Pennsylvania-source wages for every employee. Employees in reciprocity states (NJ, MD, OH, VA, WV, IN) who work in Pennsylvania may claim exemption from PA withholding by filing Form REV-419.

What is the Philadelphia Wage Tax rate for 2026?

The Philadelphia Wage Tax is 3.75% for Philadelphia residents (on all wages earned anywhere) and 3.44% for non-residents who work in Philadelphia. Employers must register with the City of Philadelphia Department of Revenue and remit withholdings quarterly (or monthly for large employers).

What is the minimum wage in Pennsylvania for 2026?

Pennsylvania’s minimum wage is $7.25 per hour, equal to the federal minimum. The legislature has not passed any increase as of 2026. State law preempts local minimum wage ordinances, so no Pennsylvania municipality can set a higher rate for private-sector employers.

Does Pennsylvania have a paid family leave law?

No. Pennsylvania has no state paid family leave or paid sick leave mandate for private employers. Federal FMLA provides unpaid leave protection for employers with 50 or more employees. Philadelphia has a local paid sick leave ordinance covering employees within city limits.

When must Pennsylvania employers issue a final paycheck?

Pennsylvania requires final wages by the next regularly scheduled payday for both discharges and voluntary quits. Accrued vacation is treated as earned wages and must be paid at termination if your written policy provides for payout. The WPCL allows employees to claim 25% liquidated damages plus attorneys’ fees for unpaid wages.