Summary of Changes
Act 18 of 2018 amends the items below that were part of Act 32 of 2008.
Crediting Provisions In and Out of State
In an effort to avoid double taxation on the citizens of Pennsylvania, Act 18 provides clarity, consistency, and fairness to the crediting provisions for all taxpayers. When Act 511 was created, the crediting language was carefully crafted to ensure that taxpayers would not be subjected to double taxation at the local level on their earned income. The intent of Act 32 of 2008 was to retain these crediting provisions, but an inadvertent change in wording resulted in taxpayers being subjected to double taxation. The word “Act” was replaced with the word “Chapter” and was not detected until aggressive tax collectors started to take advantage of their ability to collect more tax and
thereby increase their collection commissions.
Taxpayers with No Income
Taxpayers with no income have no earned income tax liability, and therefore are not required to file a return with their local tax collector. Unfortunately, some tax collectors penalized these individuals for not filing in the past under Act 32. The amendment contained in Act 18 clarifies that penalties cannot be charged to individuals with no taxable income after they have filed an earned income tax return marked as FINAL.
Tax Collection Committee Oversight Board
Act 32 of 2008 provided the Department of Community and Economic Development (DCED) with certain responsibilities, including promulgating forms and collection regulations as well as receiving annual tax collector audits and compliance reports. Unfortunately, that law did not provide DCED with the power to enforce these provisions. The amending language of Act 18 provides DCED with the power to enforce the provisions for which they are responsible as well as provide the public with a method to report tax collection issues.
Contractor & Transient Employee Rules
Under the previous law, an aggressive tax collector could collect a multitude of earned income tax rates on employees who spend any time working in taxing jurisdictions outside their home jurisdiction. For example, if a taxpayer spends an hour working in four local jurisdictions in one day on temporary job assignments, there is nothing to prevent the tax collector from enforcing the collection of four different tax rates for one day of work. This situation created confusion and placed an unnecessary burden on employers and small businesses, making Pennsylvania a less desirable location to do business. Act 18 puts rules in place for employer withholding of taxes for taxpayers on temporary job assignments in jurisdictions outside their home jurisdiction, in addition to establishing a 90-day threshold. Employees on temporary job assignments in Philadelphia are subject to the Sterling Act. This makes the administration of tax collection easier and less confusing.
Establishing Estimated Payment Safe Harbor
Following the implementation of Act 32, tax collectors penalized individuals who were making estimated payments under Section 502 of the Local Tax Enabling Act (Act 511 of 1965). Act 18 provides that a taxpayer shall have been deemed to have met the estimated payment requirements, and therefore is not subject to penalty, so long as four equal and timely estimated payments are made that are equal to 100 percent of the prior year tax liability or 90 percent of the current year’s tax liability (less tax withheld in either case). This language is consistent with federal language in the Internal Revenue Code.
W-2 Reporting Requirements
The two-digit coding method used in the past, which reflected the tax collection district where the tax payments were remitted, did not provide sufficient information for the taxpayer to complete an accurate year-end tax return. Act 18 requires that coding use the full political subdivision code in a specified format to clarify exactly the rate used in withholding the tax and where the tax was remitted.
To avoid the potential for inappropriate personal gain to private audit companies at the expense of taxpayers, Act 18 prohibits auditing tax records on a contingency fee basis. The examination of tax collectors’ books will also be carried out on a calendar year basis.