Pennsylvania is weird. Honestly, there’s no other way to put it when you start looking at how local taxes work here. If you move three miles down the road, you might suddenly owe an extra $1,200 a year to a township you’ve never even visited. It’s a quirk of the Commonwealth. Most states have a flat state tax and call it a day, but local income tax PA laws—specifically Act 32—create a web of thousands of different tax jurisdictions that catch people off guard every single spring.
You probably noticed a line on your W-2 labeled "Local" or maybe "EIT." That’s the Earned Income Tax. It’s not just one rate. It’s a calculation based on exactly where you rest your head at night.
📖 Related: Finding the Right SDCCU El Cajon Branch: What Local Members Should Know
The Act 32 Chaos and Your Residency
Before 2008, collecting local taxes in Pennsylvania was a total disaster. Every tiny borough had its own collector, often just a person with a ledger in a basement. Act 32 changed that by consolidating everything into Tax Collection Districts (TCDs). Now, big entities like Berkheimer, Keystone Collections Group, and Jordan Tax Service handle the heavy lifting. But the complexity didn't go away; it just got a professional coat of paint.
The fundamental rule of local income tax PA is that you pay where you live. Usually.
See, there’s this concept of the "resident" rate versus the "non-resident" rate. If you live in a place like Upper Darby but work in a township with no local tax, you pay the Upper Darby rate. But if you work in Philadelphia? That’s a whole different ballgame. Philly is the "Sovereign City" in the eyes of the law. They take their cut first, and they take a lot of it. For 2024 and 2025, the Philadelphia Wage Tax sits at 3.75% for residents and 3.44% for non-residents. If you work in the city, that money is gone before you see it, and usually, your home township will give you a credit so you don't pay twice. Usually.
It's Not Just About Your Salary
People think "income tax" means everything you earn. Not in PA. The local earned income tax is picky. It loves your wages, your tips, and your net profits if you’re running a side hustle. It hates your 401k distributions.
- What they tax: Hourly wages, salaries, bonuses, commissions, and those little "performance incentives" your boss gives you.
- What they leave alone: Social Security payments, pensions, unemployment compensation, and interest from your savings account.
Basically, if you had to sweat for it, they want a piece. If it’s passive or "retirement" money, it’s generally safe. However, don't confuse this with the Local Services Tax (LST). That’s that annoying $52-a-year charge that gets pulled out in tiny increments. It’s a flat fee for the privilege of working in a specific spot, used to pay for police, fire, and road repairs. It’s separate from the EIT, but it’s part of the same headache.
Why Does My Neighbor Pay Less?
The "Home Rule" phenomenon is why your tax bill might look insane compared to someone ten minutes away. Pennsylvania allows certain municipalities to become Home Rule Charter communities. This gives them the power to jack up the local income tax PA rates beyond the standard 1% cap.
Take a look at the Scranton area or parts of the Lehigh Valley. You’ll see rates hitting 2% or 3%. Why? Because those areas have older infrastructure or pension debts that need feeding. Meanwhile, a neighboring "Second Class Township" might stick to the 1% minimum (split 0.5% for the school district and 0.5% for the municipality).
It creates a "tax border" effect. You can literally save thousands of dollars by moving across a street if that street happens to be the boundary between a high-tax school district and a low-tax one. It’s a massive factor in real estate that people often overlook until the first paycheck arrives at the new house.
The PSD Code Nightmare
Every single person working in PA needs to know their PSD Code. It’s a six-digit number. It is the most important part of your residency certification form. If you put the wrong code, your money goes to the wrong town.
When you start a job, your HR person hands you a "Residency Certification Form." Most people scribble their address and move on. Don't do that. Go to the PA Department of Community & Economic Development (DCED) website. They have a "Tax Register" tool. Plug in your exact address and find your PSD code. If you live in a new development, the GPS might be wonky, so double-check the school district. If your money goes to the wrong collector, getting it back is like trying to get water out of a stone. You have to file for a refund, wait months, and prove you didn't live where the employer thought you lived.
✨ Don't miss: Federal income tax bracket calculator: Why your refund is smaller than you think
The Self-Employed Trap
If you're a freelancer or a 1099 contractor, nobody is withholding your local income tax PA for you. This is where people get ruined. You’re supposed to file "Estimated Quarterly Returns."
If you wait until April 15th to pay the full year's local tax, the collectors like Berkheimer will slap you with interest and penalties. They expect their cut every three months. It’s frustrating because the state and federal government have clear portals for this, but local collectors sometimes feel like they’re running on 1990s software. You’ve got to be proactive. Set aside 1% to 3% of every check you get, depending on where you live.
What Happens if You Don't Pay?
They will find you. It sounds dramatic, but it’s true.
The local tax collectors have a data-sharing agreement with the PA Department of Revenue. They compare state tax filings with local filings. If you reported $80,000 in income to the state but $0 to your local township, a "Non-filer" notice will show up in your mail within 18 to 24 months. By then, they’ve added a 10% penalty and monthly interest.
Some people try to argue that they aren't "residents" because they spend winters in Florida. PA is strict. If you maintain a "permanent abode" here and spend more than 183 days in the state, they consider you theirs. The "Snowbird" defense rarely works unless you've completely severed ties—voter registration, driver's license, the whole nine yards.
Modern Changes: The Remote Work Dilemma
Post-2020, everything got messy. If you live in Lancaster but work for a company in Pittsburgh, you pay Lancaster. That’s easy. But what if you work for a company in New York City?
You still owe your local PA township. Many out-of-state employers have no idea how PA local taxes work. They won't withhold it. You’ll see your federal and state taxes come out, but your local line will be blank. This doesn't mean you’re exempt. It means you’re responsible for paying it yourself. You have to register with your local TCD and make those quarterly payments. Failure to do so is the #1 reason PA residents end up with tax liens.
Actionable Steps to Handle Your Local Taxes
Stop guessing and get your paperwork in order. It takes twenty minutes but saves a week of stress later.
- Verify your PSD Code today. Use the DCED Municipal Statistics website. Don't trust your employer to have it right, especially if they are a national corporation.
- Audit your paystub. Look for the "Local Tax" line. If you live in a 1% area and you’re earning $5,000 a month, you should see $50 going out. If it’s $0, call HR immediately.
- File your local return separately. Your TurboTax or H&R Block software might handle the federal and state, but many don't automatically file the local PA-Situs return. You often have to go to the collector's website (like https://www.google.com/search?q=eberkheimer.com) to finish the job.
- Save your W-2s for 7 years. Local collectors are notorious for sending "missing return" notices for years you actually filed. Having the physical or digital copy of your local filing confirmation is your only shield.
- Check for "Mercantile" or "Business Gross Receipts" taxes. If you run a business out of your home, you might owe more than just income tax. Some boroughs charge a tax on your total sales, not just your profit.
Local taxes in Pennsylvania aren't going to get simpler. The system is designed to keep revenue within the small communities that need it most. Stay on top of the PSD codes, watch your withholding, and never assume that "no news is good news" from your tax collector. Usually, no news just means the interest is still compounding.