In Pennsylvania, local earned income tax is based on both where you live and where you work. Your employer compares your home municipality’s resident rate against your work municipality’s non-resident rate and withholds whichever is higher. You cannot escape the larger rate by choosing to live or work in a lower-tax municipality. Philadelphia is the major exception, and a separate flat Local Services Tax may also apply based purely on where you work.
The Higher-of-Two-Rates Rule
The core principle under Pennsylvania’s Act 32 collection framework is simple: your employer must withhold the higher of your home municipality’s resident Earned Income Tax (EIT) rate or your work municipality’s non-resident EIT rate.1PA Department of Community & Economic Development. Local Withholding Tax FAQs
If you live in a township with a 0.5% rate but commute to a borough with a 1% rate, your employer withholds at 1%. Reverse the situation and you still pay the higher home rate. County-wide tax collection districts then split the revenue between the two municipalities according to their respective rates, so you never have to divide the payment yourself.2PA Department of Community & Economic Development. Local Income Tax Information
How Local EIT Rates Are Set
Under the Local Tax Enabling Act (Act 511), municipalities and school districts may each impose an earned income tax, but the combined rate on any one taxpayer is capped at 1%.3Pennsylvania General Assembly. Local Tax Enabling Act – Section 311 When both a municipality and its overlapping school district levy the tax, that 1% is usually split evenly at 0.5% each, unless the two taxing bodies agree to a different split. Some municipalities levy their share while the school district does not, or vice versa, so the total at your address could be anywhere from 0% to 1%.
Every municipality and school district has a six-digit Political Subdivision (PSD) code, which employers use to look up the correct rates.4PA Department of Community & Economic Development. PSD Codes and EIT Rates You can check your own rates by entering your home and work addresses into the DCED’s Municipal Statistics address search tool, which returns your resident EIT rate, the non-resident rate at your work location, any Local Services Tax, and the assigned tax collectors.5DCED.PA.Gov. Taxes – Find Local Withholding Rates by Address – Municipal Statistics If the tool doesn’t return a result, call your county’s tax collector with your municipality and school district names.
How Your Employer Withholds the Tax
All Pennsylvania employers are required to deduct and remit both local EIT and the Local Services Tax for their employees.6PA Department of Community & Economic Development. Local Income Tax Requirements for Employers The amount withheld is driven by a Residency Certification Form that you fill out when you start a job or change your home address. That form captures both addresses, letting the employer identify both PSD codes and apply the higher-of-two-rates comparison.4PA Department of Community & Economic Development. PSD Codes and EIT Rates
Providing accurate information is your responsibility. Move without updating the form and your employer may withhold at the wrong rate, leaving you with a balance due when you file.
If You Work in Multiple Locations
Jobs that rotate you through different municipalities follow a special rule. For temporary assignments lasting fewer than 90 consecutive days at a single site, your employer withholds the higher of your resident rate or the non-resident rate at the employer’s permanent home office. Once you hit 90 or more consecutive days at a particular job site, the non-resident rate for that site becomes the comparison rate instead.1PA Department of Community & Economic Development. Local Withholding Tax FAQs The distinction matters most for construction workers, traveling salespeople, and consultants who rotate between client sites.
If You’re Self-Employed
With no employer to withhold, the obligation shifts entirely to you. Self-employed individuals, freelancers, and anyone receiving 1099 income must make quarterly estimated local EIT payments on April 15, July 15, October 15, and January 15 of the following year. Late payments can trigger penalty and interest. You pay the resident rate for the municipality where you live, since there is no work-location employer creating a non-resident rate comparison.
Philadelphia Works Differently
Philadelphia is the biggest exception to everything above. The city operates under the Sterling Act, a separate legal authority that predates Act 32 and lets Philadelphia levy a Wage Tax at rates well above the 1% Act 511 cap. For 2026, the Wage Tax is 3.74% for residents and 3.43% for non-residents. Employees working in Philadelphia are covered under the Sterling Act rather than the standard Act 32 framework.1PA Department of Community & Economic Development. Local Withholding Tax FAQs
The normal higher-of-two comparison doesn’t work the same way here. If you live outside Philadelphia but work there, your employer withholds the 3.43% non-resident Wage Tax and may still need to account for your home municipality’s EIT separately. If you live in Philadelphia, you pay the 3.74% resident rate regardless of where you work. Philadelphia residents file through the city’s own online system rather than the standard local EIT return used everywhere else in the state.
The Local Services Tax
Separate from the EIT, municipalities and school districts may impose a Local Services Tax (LST) of up to $52 per year. Unlike the EIT, the LST is tied entirely to where you work, not where you live.7PA Department of Community & Economic Development. Local Services Tax (LST) Your employer withholds it in small increments, typically $1 per weekly paycheck. Even if you work in multiple municipalities during the year, your total LST across all locations is capped at $52.
Two exemptions are worth knowing. If the combined LST in your work municipality exceeds $10, you are exempt when your total earned income from sources within that municipality is under $12,000 for the year. Honorably discharged veterans who are blind, paraplegic, a double or quadruple amputee due to military service, or 100% disabled from a service-connected disability are also exempt, as are reserve members called to active duty.7PA Department of Community & Economic Development. Local Services Tax (LST)
If You Live in Pennsylvania but Work in Another State
Pennsylvania has reciprocal tax agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia.8Commonwealth of Pennsylvania. Determining Residency for PA Personal Income Tax Purposes Under these agreements, those states will not tax your W-2 wages if you’re a Pennsylvania resident. Instead, Pennsylvania taxes the compensation, and your employer should withhold Pennsylvania state and local taxes rather than the other state’s. The agreements cover only standard W-2 compensation. Freelance income, 1099 payments, and other non-employee compensation are not protected.
Work in a state with no reciprocal agreement and you will likely owe that state’s income tax on wages earned there. You can claim a credit on your Pennsylvania return (using Schedule G-L) for income tax paid to the other state, avoiding full double taxation at the state level.9Pennsylvania Department of Revenue. PA Personal Income Tax Guide Deductions and Credits Pennsylvania does not grant a credit for local or municipal taxes paid to political subdivisions in other states, so a city income tax paid at an out-of-state workplace cannot offset your Pennsylvania local EIT.
Filing Your Annual Local EIT Return
Every Pennsylvania resident with earned income must file an annual local EIT return with the local tax collector by April 15, even if your employer withheld the correct amount and you owe nothing. The return reconciles what you earned against what was withheld, catching gaps from job changes, multiple employers, or a mid-year move.
Two jobs where neither employer knew about the other can leave your combined withholding short of what you owe. The annual return is where you report all earnings, take credit for taxes already paid, and either pay the difference or request a refund. Federal and state tax software does not file your local return; you handle that separately through your local tax collector’s website or by mail.
Extensions are available if you need more time. Some collectors have their own extension forms, but an extension to file does not extend the deadline for payment. If you expect to owe, pay by April 15 even while requesting the extension.
Penalties for Late Filing
Missing the deadline can bring a $25 fee per individual, or $50 for couples filing a combined return. Interest on unpaid local tax accrues monthly. The rate varies by collector, but a common statutory figure is roughly 0.583% per month on unpaid balances. Compounded across multiple missed years, these charges grow quickly, and collectors have become more aggressive about issuing failure-to-file notices.
The bigger risk is often the compliance inquiry itself. When a tax collector sends a failure-to-file notice, you have to produce documentation of your income even for years you owed nothing. Keeping copies of your W-2s and filed returns is the simplest way to head that off.