Employees are subject to payroll taxes at the federal, state and local levels. The standard federal payroll taxes apply to residents of all states. This includes federal withholding tax based on the employee’s W-4; Social Security tax, which is calculated as 6.2% of wages, and subject to a wage ceiling; and Medicare tax, which is calculated at 1.45% of wages, without a wage ceiling.
At the Pennsylvania state level, an employee is subject to two payroll taxes: Pennsylvania state withholding at a flat 3.07% of wages, and the Pennsylvania unemployment tax at a flat 0.06% of wages.
At the local level, the payroll withholding tax depends upon the employee’s residency and the jurisdiction of his or her employer. For example, a resident of Philadelphia who works in Philadelphia will have local withholding tax of 3.8712%1; whereas a resident of a Bucks County suburb who works in Bucks County may have a local withholding rate between 0.5% and 1.0%.
Based on the two aforementioned examples, a Philadelphia-based resident and employee making $70,000, who falls in the 15% federal tax bracket, will have about $20,800 withheld in taxes. An employee fitting the same criteria but living and working in a Bucks County suburb, will have about $18,800 withheld in taxes.
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Answered by: Eric J. Seidman, CPA, is with Wouch Maloney & Co. LLP in Horsham, Pa.
1 Updated Aug. 13, 2019