Pennsylvania Payroll Taxes 2026: Complete Overview for Employers

1. Overview: Pennsylvania Payroll Tax Landscape

Pennsylvania has an unusual payroll tax landscape compared to most states. On the surface, the state income tax is refreshingly simple — a flat 3.07% rate with no brackets, no standard deduction, and no personal exemptions to calculate. But that simplicity is deceptive, because Pennsylvania is one of very few states with mandatory local income taxes that vary by every municipality.

This local tax complexity is the defining challenge of Pennsylvania payroll. With over 2,500 taxing jurisdictions across the commonwealth, each setting its own Earned Income Tax rate, employers must track where every employee works and withhold the correct local rate for that location. Add in the Local Services Tax (up to $52 per year) and employer-paid State Unemployment Insurance contributions, and you have a payroll tax system that demands close attention to detail.

Here is a summary of every payroll tax Pennsylvania employers must manage in 2026:

Let’s break down each of these taxes in detail, including rates, filing requirements, and the specific challenges you need to watch for.

2. State Income Tax (3.07% Flat Rate)

Pennsylvania’s flat 3.07% state income tax rate makes state-level withholding straightforward compared to states with progressive brackets like California or New York. There are no tax tables to consult, no filing status calculations, and no bracket thresholds to track. You simply withhold 3.07% of every employee’s taxable compensation.

Key Facts About PA State Income Tax Withholding

• Rate: 3.07% flat on all taxable compensation — the same rate applies to every employee regardless of income level.
• No standard deduction or personal exemptions: Unlike the federal system, Pennsylvania does not reduce the taxable base with standard deductions or personal exemptions. All compensation is subject to the 3.07% rate.
• Withholding frequency: Employers withhold from every paycheck, whether weekly, biweekly, semi-monthly, or monthly.
• Estimated payments: Use Form PA-40 ES for quarterly estimated tax payments when required.
• Exemption claims: Employees who expect to owe no PA income tax can claim exemption from withholding by filing Form REV-419 (Employee’s Nonwithholding Application Certificate) with their employer.
• Taxable compensation: Includes wages, salaries, commissions, bonuses, tips, and most other forms of employee compensation.

Employers must register with the PA Department of Revenue to obtain a withholding account number. All state withholding tax payments and filings are submitted electronically through the e-TIDES (Electronic Tax Information and Data Exchange System) portal.

3. State Unemployment Insurance (SUI) via PA UC

Pennsylvania’s State Unemployment Insurance is administered by the PA Department of Labor & Industry through the Unemployment Compensation (UC) system. Unlike the state income tax, SUI is an employer-paid tax — you cannot deduct it from employee wages.

2026 SUI Rate Details

• New employer rate: 3.822% — this is the default rate assigned to businesses that have not yet established an experience rating.
• Experienced employer range: 1.419% to 10.3189%, based on your experience rating (determined by your claims history and the overall health of the UC trust fund).
• Taxable wage base: $10,000 per employee per year. Once an employee’s wages exceed $10,000 in a calendar year, no further SUI contributions are required for that employee.
• Maximum annual cost per employee: $1,031.89 at the maximum rate of 10.3189%.
• Minimum annual cost per employee: $141.90 at the minimum rate of 1.419%.

How Experience Rating Works

Your SUI rate is recalculated annually based on your experience rating, which factors in how many former employees have filed unemployment claims against your account relative to your total payroll. Employers with fewer claims receive lower rates, while those with more claims pay higher rates.

The overall health of the UC trust fund also affects rates. When the trust fund balance drops below certain thresholds, additional surcharges may be applied to all employers to rebuild the fund. These surcharges are separate from your base experience rate.

Filing Requirements

• Quarterly UC-2 filing: Employers must file Form UC-2 (Employer’s Report for Unemployment Compensation) each quarter, reporting wages paid and UC contributions due.
• Electronic filing: Quarterly reports and payments are submitted through the uc.pa.gov portal (Pennsylvania’s Unemployment Compensation Management System, or UCMS).
• New employer registration: Register for a UC account through the PA UC system at uc.pa.gov when you hire your first employee.

4. Local Earned Income Tax (EIT)

The local Earned Income Tax is the biggest complexity in Pennsylvania payroll — and the element that makes PA payroll uniquely challenging compared to nearly every other state. Unlike most states where employers only deal with state-level income tax, Pennsylvania requires employers to withhold local income taxes assessed by individual municipalities.

The Scale of Local Tax Complexity

Pennsylvania has over 2,500 taxing jurisdictions, each with the authority to set its own Earned Income Tax rate. These rates range from as low as 0.5% in many smaller municipalities to as high as 3.75% in Philadelphia. Every borough, township, and city can levy its own EIT, and the rates change periodically.

Major City Rates

• Philadelphia: 3.75% for residents, 3.44% for non-residents who work in the city.
• Pittsburgh: Has its own local tax structure with rates that differ for residents and non-residents.
• Suburban and rural municipalities: Typically range from 0.5% to 2.0%, but every municipality is different.

Tax Collection Districts (TCDs)

To manage the complexity of thousands of municipalities, Pennsylvania organizes local tax collection through Tax Collection Districts (TCDs). Rather than sending payments to each individual municipality, employers remit local EIT withholdings to the TCD responsible for the work location. Each county has a designated TCD, and you can look up the correct TCD and rate for any municipality through the DCED system.

DCED Oversight

The Department of Community and Economic Development (DCED) oversees the local EIT system statewide. DCED maintains the official database of local tax rates, TCD assignments, and municipality codes. Employers should reference the DCED’s Municipal Statistics database to verify current rates and identify the correct TCD for each work location.

What Employers Must Do

• Determine each employee’s work location municipality and the applicable EIT rate.
• Register with the appropriate TCD(s) for each work location where you have employees.
• Withhold the correct rate from each paycheck based on the work location.
• File quarterly returns and remit withheld EIT to the appropriate TCD.
• Update rates annually — municipalities can change their EIT rates each year.

For a comprehensive guide to managing local income tax withholding, see our Pennsylvania Local Earned Income Tax guide.

5. Local Services Tax (LST)

The Local Services Tax (LST) — formerly known as the Emergency and Municipal Services Tax (EMST) — is an additional local tax that municipalities may impose on individuals who work within their borders. Unlike the EIT, which is a percentage of wages, the LST is a flat annual amount of up to $52 per employee.

Key LST Details

• Maximum amount: $52 per year per employee.
• Not all municipalities impose it: The LST is optional. Some municipalities levy the full $52, some levy a lower amount, and some do not impose it at all.
• Employer withholding: Employers are responsible for withholding the LST from employee wages and remitting it to the municipality or its designated tax collector.
• Proportional withholding: The annual LST amount is divided proportionally across pay periods. For example, if the LST is $52/year and you pay biweekly (26 pay periods), you withhold $2.00 per paycheck.
• Low-income exemption: Employees who earn less than $12,000 per year from all sources may claim an exemption from the LST. Employees must provide their employer with written notification of the exemption.
• Multiple employers: If an employee works for more than one employer in the same municipality, the LST is only withheld by the primary employer (the one paying the highest wages).

6. Where and How to Pay

Pennsylvania payroll taxes are paid to multiple agencies, depending on the type of tax. Here is where each payment goes:

State Income Tax Withholding

Pay through the PA Department of Revenue’s e-TIDES system (Electronic Tax Information and Data Exchange System). This is the central portal for all state tax payments, including employer withholding, sales tax, and corporate taxes. Access e-TIDES at www.etides.state.pa.us.

Unemployment Compensation (UC) Contributions

Pay through the PA UC Management System (UCMS) at uc.pa.gov. This is the portal managed by the PA Department of Labor & Industry specifically for unemployment compensation reporting and payments.

Local Earned Income Tax (EIT)

Pay to the appropriate Tax Collection District (TCD) for the municipality where your employees work. Each TCD has its own payment portal and procedures. You can identify the correct TCD for any municipality through the DCED’s website.

Local Services Tax (LST)

Pay to the municipality or its designated tax collector. Some municipalities use the same TCD that collects the EIT, while others designate a separate collector. Check with the specific municipality to confirm where to send LST payments.

7. Filing Schedules and Deadlines

Pennsylvania payroll taxes follow different filing schedules depending on the tax type and the amount of tax you withhold.

Unemployment Compensation (UC-2)

All employers file the UC-2 quarterly, regardless of the amount of contributions. The quarterly deadlines are:

State Withholding Tax

The frequency of state withholding tax deposits depends on the amount of tax you withhold:

• Semi-monthly: Required if you withhold $1,000 or more per month. Payments are due on or before the 15th and the last day of each month.
• Monthly: Required if you withhold between $300 and $999 per month. Payments are due by the 15th of the following month.
• Quarterly: Permitted if you withhold less than $300 per month. Payments follow the same quarterly deadlines as UC-2 filings.

Regardless of your deposit frequency, all employers must file an annual reconciliation return.

Local Earned Income Tax

Local EIT withholdings are remitted quarterly to the appropriate Tax Collection District. Filing deadlines generally follow the same Q1–Q4 pattern as the quarterly schedule above, though specific TCDs may have slightly different due dates. Check with your TCD for exact deadlines.

Local Services Tax

LST payments are typically remitted quarterly to the municipality or its designated collector, following the same quarterly schedule. Some municipalities may require more frequent remittance for larger employers.

8. Penalties for Late Filing and Payment

Pennsylvania takes payroll tax compliance seriously, and late filing or payment can result in significant penalties across all tax types.

Unemployment Compensation Penalties

• Late filing penalty: Failure to file the UC-2 on time may result in a penalty of up to 10% of the contributions due for that quarter.
• Late payment interest: Interest accrues on unpaid UC contributions from the due date at rates established by the Department of Labor & Industry.
• Failure to register: Employers who fail to register for UC when required may face back-assessed contributions plus penalties and interest for all periods of non-compliance.

State Withholding Penalties

• Late payment penalty: The PA Department of Revenue assesses penalties for late withholding tax payments, typically calculated as a percentage of the unpaid tax.
• Failure to withhold: Employers who fail to withhold PA income tax from employee wages may become personally liable for the amounts that should have been withheld.
• Interest: Interest accrues on all unpaid withholding tax from the original due date.

Local Tax Penalties

• EIT late payment: Tax Collection Districts may assess penalties and interest on late EIT remittances. Penalty rates vary by TCD.
• LST late payment: Municipalities may impose penalties for late LST payments, and employers may be liable for the full amount of LST that should have been withheld.
• Failure to withhold local taxes: Employers who fail to withhold EIT or LST can be held liable for the amounts not withheld, plus penalties and interest.

9. Don’t Forget Federal Payroll Taxes

All of the Pennsylvania taxes described above are in addition to your federal payroll tax obligations. As a Pennsylvania employer, you must also withhold and pay:

• Federal income tax withholding: Based on the employee’s W-4 and the IRS withholding tables.
• Social Security tax (OASDI): 6.2% from the employee and 6.2% from the employer on wages up to the Social Security wage base ($176,100 in 2026).
• Medicare tax: 1.45% from the employee and 1.45% from the employer on all wages, plus an additional 0.9% employee-only surtax on wages over $200,000.
• Federal Unemployment Tax (FUTA): 6.0% on the first $7,000 per employee, reduced to an effective rate of 0.6% with the full credit for timely state UC payments.

For a complete breakdown of federal payroll tax obligations, see our Federal Payroll Taxes Explained guide.

10. Frequently Asked Questions

Does Pennsylvania have a state disability insurance (SDI) payroll tax?

No. Unlike states such as California, New York, and New Jersey, Pennsylvania does not have a state disability insurance program funded through payroll taxes. There is no SDI withholding in PA.

How do I determine the correct local EIT rate for my employees?

Use the DCED’s Municipal Statistics database to look up the EIT rate for the municipality where your employee works (not where they live). You will also find the assigned Tax Collection District for that municipality. Rates are updated annually, so check at the beginning of each year for changes.

What if my employee works remotely from home in a different municipality than the office?

This is one of the most contested areas of Pennsylvania local tax law. Generally, the withholding obligation is based on the employer’s location (where the employee is assigned to work), not the employee’s home. However, if an employee permanently works from home, the home municipality may have a stronger claim. Consult a PA tax professional for guidance on remote work situations, as rules and interpretations can vary by TCD.

Can I use payroll software to manage all these different PA taxes?

Yes, and most employers with more than a few employees should strongly consider it. Quality payroll platforms like handle the complexity of Pennsylvania’s multi-layer tax system — including local EIT lookups, rate changes, and filings to the correct TCDs. Manual payroll in Pennsylvania is significantly more error-prone than in most other states.

Do I need to withhold PA taxes for out-of-state employees?

If the employee works in Pennsylvania (even if they live in another state), you generally must withhold PA state income tax and the applicable local taxes for the work location. Pennsylvania has reciprocal tax agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia — meaning residents of those states working in PA are exempt from PA state income tax (but not necessarily local taxes). The employee must provide Form REV-420 to claim the reciprocal agreement exemption.