Payroll Pennsylvania: Employer Tax and Software Guide

Pennsylvania has one of the simplest state income taxes in the country and one of the most complicated local tax systems, and the gap between the two is where payroll goes wrong. This guide covers what Pennsylvania actually requires, why the local layer breaks payroll setups, and how 10 providers price the work at 5, 15, and 50 employees. If I were starting payroll here, the local layer is where I would spend my time.

The state side takes about one sentence to explain. Multiply gross wages by 3.07 percent. No brackets, no standard deduction, no state W-4, and the rate has not moved since 2004.

The local layer is another matter: 69 tax collection districts, a separate Earned Income Tax (EIT) rate for every combination of municipality and school district, a rule requiring you to withhold at whichever of two rates is higher, a flat dollar Local Services Tax with its own exemption threshold, and Philadelphia running an entirely separate system outside the whole framework.

What Pennsylvania actually requires from employers

Five obligations sit on top of federal payroll, plus the deposit and filing deadlines that go with them. The five are unusually asymmetric: two are trivial, and three are where the real work lives.

State income tax withholding

State withholding is a flat 3.07 percent on all compensation, unchanged since 2004, and the same percentage applies to bonuses and supplemental pay as to regular wages. Pennsylvania has no version of the federal W-4 because a flat rate leaves nothing to elect. Employers register for a withholding account through the Pennsylvania Online Business Tax Registration on myPATH, the Department of Revenue's online portal.

The one complication is that Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. An employee living in one of those states and working in Pennsylvania has tax withheld for their home state instead, provided the exemption paperwork is on file. Reciprocity covers state income tax only and does not touch local EIT or the Philadelphia Wage Tax.

Unemployment compensation, on both sides

Pennsylvania is one of a small handful of states where employees contribute to unemployment. According to the Pennsylvania Department of Labor and Industry, the 2026 employee withholding rate for Unemployment Compensation (UC) is 0.07 percent of gross wages, roughly 70 cents per $1,000, and there is no cap on the wages subject to it.

The two sides are lopsided. The employer stops paying after $10,000 of wages per employee, one of the lowest bases in the country, while the employee contribution runs on every dollar. On a $100,000 salary, the employee pays $70 for the year and the employer pays its rate on $10,000. Both figures are small, but a payroll system that omits the employee line produces incorrect net pay for every worker.

Local Earned Income Tax under Act 32

This is the part that makes Pennsylvania different from almost anywhere else, and it gets its own section below.

Local Services Tax

The Local Services Tax (LST) is a flat dollar amount rather than a percentage, imposed by many municipalities on people who work within their borders and capped at $52 per year across all jobs and locations. It follows the work location rather than the residence.

Where the combined LST rate exceeds $10 annually, employers must deduct it in equal installments across pay periods rather than all at once. Municipalities charging above $10 must also exempt workers earning under $12,000 in that jurisdiction.

New hire reporting

Every employer must report new and rehired employees to the state within 20 days of the hire date, meaning the first day the employee performs paid work. Most full-service payroll plans file it automatically and self-service tiers generally do not.

Depositing and filing Pennsylvania payroll taxes

How often the withheld money goes to Harrisburg is set by how much you withhold, not by your pay cycle. The Department of Revenue puts each employer on one of four deposit schedules, and the quarterly return is due from everyone regardless of which one you land on.

Three filings sit on top of those deposits. The quarterly withholding return goes to myPATH by the last day of April, July, October, and January. The quarterly unemployment report on Forms UC-2 and UC-2A goes to Labor and Industry on the same four dates, and it is required even for a quarter with no wages paid.

The third filing is annual: the W-2s and Form REV-1667 (the annual withholding reconciliation statement) are due January 31 regardless of the federal due date.

Switching schedules is easier in one direction than the other. A more frequent schedule can be requested 15 days before the start of any quarter, but you can only drop to a less frequent one at the start of a calendar year, so a business whose payroll shrinks in March keeps depositing on the old rhythm until January.

The local tax problem that defines Pennsylvania payroll

Act 32 consolidated about 560 local tax collectors into 69 tax collection districts, generally organized by county, according to the state's Act 32 procedure manual. That was a simplification. What remains is still one of the most demanding local withholding regimes in the United States.

Every employee has two six-digit PSD (political subdivision) codes: one for where they live, one for where they work. Both are captured on the Residency Certification Form, which every new hire completes.

Using those codes, the employer withholds at the higher of the employee's total resident EIT rate or the nonresident rate for the work location, and remits to the tax collector for the worksite's district. When the work-location rate is the higher one, the home municipality still receives its share and the work municipality keeps the difference.

In practice, an employer with eight people scattered across four municipalities tracks four resident rates, compares each against the work-location rate, and remits the total to the collector for its worksite district. Add a second office in a different county and the count grows again. None of it is difficult arithmetic, but it is exactly the per-employee bookkeeping a payroll platform either handles or quietly leaves to you.

The Residency Certification Form is where all of this meets onboarding: local withholding cannot be set up correctly until that form is complete and accurate for the person. A form collected late, or filled in with a home address the employee has since moved from, produces wrong withholding for every pay period until someone catches it.

Pennsylvania requires an updated form whenever an employee changes address, since a move across a municipal line can change both the PSD code and the rate.

10 payroll providers for Pennsylvania employers compared

Every provider below files Pennsylvania state withholding and unemployment. The column that actually separates them is Act 32 local EIT: whether the provider resolves PSD codes and remits to the right collector, or hands that back to you.

OnPay

One plan at $49 per month plus $6 per employee, with no tier to climb. Tax filing covers all 50 states with no multi-state surcharge, which matters in a state bordered by six others and tied by reciprocity agreements to four of them. Year-end W-2 and 1099 filing is included and the first month is free.

Gusto

A common first payroll purchase for US small businesses. Tax filing runs automatically across federal, state, and local jurisdictions, year-end processing carries no extra charge, and the Simple plan runs $49 per month plus $6 per employee after a base increase during 2025. For Pennsylvania local tax, Gusto's help center has you look up each work address and register with the local collector yourself before it files the local returns, which is why the Act 32 column above stays unticked.

The Pennsylvania-specific catch is that Simple covers single-state payroll only. Hire one person across the New Jersey or Ohio line and the account moves to Plus at $80 plus $12 per employee. In a state where cross-border commuting is routine, model the Plus number if there is any chance of a second state.

Patriot Software

The cheapest full-service plan in this comparison at every headcount modeled: $37 per month plus $5 per employee, with federal, state, and local tax filing included. New hire reports remain yours to file. Basic at $17 plus $4 calculates only and leaves depositing and filing to you, a poor trade in a state with this much local complexity.

Additional state filings cost $12 per month each. For a small single-location Pennsylvania business with staff concentrated in one or two municipalities, that pricing is hard to beat.

QuickBooks Workforce Payroll

QuickBooks Payroll Core became Workforce Payroll in a 2026 rename, and it runs $50 per month plus $7 per employee after the per-employee increase of July 1, 2026. Federal and state tax filing is included on every tier, but certain local taxes are handled only on Workforce Premium and Elite.

The reason to pick QuickBooks is unchanged: if the books already live in QuickBooks Online, payroll entries land in the general ledger with no export step.

SurePayroll

Owned by Paychex and aimed at very small and household employers at roughly $29 per month plus $7 per employee. The distinguishing feature is a flat $9.99 monthly multi-state charge regardless of how many states are involved, which undercuts the per-state fees in this comparison from the second state onward.

Paylocity

A full HR and payroll platform with unusually deep Pennsylvania local tax handling. For an employer with staff spread across many municipalities and school districts, PSD resolution and remittance to each worksite's collector are the specific reason to consider it. Pricing is quote-only and aimed above the smallest end of the market.

ADP RUN

ADP RUN calculates, files, deposits, and reconciles payroll taxes in every package, and ADP pays the resulting fines if it makes a filing error. ADP publishes no rates for its Essential, Enhanced, Complete, or HR Pro packages, so every price starts with a quote.

Paychex Flex

A service relationship rather than a software subscription, with a payroll specialist included on the Complete package and sold as an add-on below it. Pricing is quote-only for every package. In Pennsylvania the argument is concrete: when a local collector sends a notice about a jurisdiction you did not know you owed, having someone to call is worth real money.

Rippling

A unified employee record where payroll, HR, and IT provisioning share one data model. Rippling's pricing page lists no rates. Its small-business page starts payroll plans at a $40 monthly base fee plus $8 per user, and its blog starts the core platform at $8 per employee and prices the payroll module at $8 more on annual billing, so configured quotes land above that start.

Rippling's multi-jurisdiction tax handling is genuinely strong, which matters here, but the platform is built for companies with more administrative complexity than a single Pennsylvania storefront.

Square Payroll

Full-service payroll at $35 per month plus $6 per person paid, with tax filing included and no separate charge. For a Pennsylvania retail or food service business already running Square point of sale, hours and tips flow into payroll with nothing to configure. Outside the Square ecosystem the product is competent but unremarkable, with thin HR functionality.

What each provider actually costs a Pennsylvania employer

For the published-rate plans in the table below, single-state payroll here runs $62 to $85 a month at 5 employees and $287 to $400 at 50. The table shows each plan at three headcounts, plus the cost of adding a second state.

The second-state column matters here because Pennsylvania borders six states and has reciprocity agreements with four of them (Maryland, New Jersey, Ohio, and West Virginia, though not New York or Delaware).

Patriot and Square stay cheaper than OnPay, Gusto Simple, and QuickBooks at every headcount, and Patriot at 50 employees still undercuts every other published-rate plan at that size. The second-state column also reorders the ranking: Gusto Simple is competitive until one New Jersey hire forces the Plus tier, at which point a 15-person payroll jumps from $139 to $260.

Choosing a payroll provider for Pennsylvania

Four questions separate providers that will work here from providers that will generate correction notices.

Beyond the payroll engine, the requirement most commonly missed is the 20-day new hire report. Ask who files it before you sign, since even a full-service plan can leave it with you, as Patriot's does.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider.

The providers above process payroll, file payroll taxes, and administer benefits, so if payroll is the problem you are solving, one of them is your answer.

What we handle is the layer underneath, and in Pennsylvania that layer has unusual weight. Local withholding is only as good as the Residency Certification Form behind it, and that form is collected at onboarding alongside the I-9, the federal W-4, and everything else a new hire signs.

FirstHR covers onboarding workflows that put those forms on the first-day task list for each new hire, e-signatures on offer letters and acknowledgments, document collection, and employee records for US small businesses at a flat $98 a month for up to 10 people or $198 for 11 to 50.

If the recurring problem is that paperwork arrives late, incomplete, or with an address nobody updated after a move, that is a different problem than tax filing, and it is the one we built for.

Frequently Asked Questions

What payroll taxes do Pennsylvania employers withhold?

A flat 3.07 percent state income tax, local Earned Income Tax under Act 32 at the higher of the resident or work-location rate, the Local Services Tax where the work municipality imposes it, and a 0.07 percent employee unemployment contribution with no wage cap. Employers separately pay their own unemployment contribution on the first $10,000 of each employee's wages.

Does Pennsylvania have a state W-4 form?

No. A flat rate leaves nothing to elect, so withholding is simply gross wages multiplied by 0.0307. Pennsylvania instead requires a Residency Certification Form from every new hire, capturing the PSD codes for home and work locations that determine local EIT withholding.

How does Act 32 local earned income tax withholding work?

Every employee has two PSD codes, one for residence and one for work location. The employer withholds at the higher of the resident rate or the work-location nonresident rate and remits to the tax collector for the correct district among the 69 established by Act 32. When the work rate is higher, the home municipality still receives its share.

Who pays the Philadelphia Wage Tax?

Philadelphia residents on all earned income regardless of work location, and non-residents on income earned within the city. Effective July 1, 2026, the rates are 3.735 percent for residents and 3.425 percent for non-residents. Philadelphia is outside Act 32 and requires separate registration with the City.

What is the Local Services Tax in Pennsylvania?

A flat dollar tax on people who work in a municipality that imposes it, capped at $52 per year across all jobs. Where the rate exceeds $10 annually it must be deducted in equal installments across pay periods, and municipalities above $10 must exempt workers earning under $12,000 in that jurisdiction.

What is the Pennsylvania unemployment wage base?

Employers pay on the first $10,000 of each employee's annual wages, with new non-construction employers at 3.822 percent and new construction employers at 10.5924 percent. Employees pay 0.07 percent on all wages with no cap.

Does Pennsylvania have reciprocal tax agreements with other states?

Yes, with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. An employee living in one of those states and working in Pennsylvania has state income tax withheld for their home state with the correct exemption paperwork on file. Reciprocity does not exempt anyone from local EIT or the Philadelphia Wage Tax.

How much does payroll software cost for a Pennsylvania small business?

At 5 employees, published October 2026 rates run roughly $62 for Patriot Full Service, $64 for SurePayroll, $65 for Square Payroll, $79 for OnPay or Gusto Simple, and $85 for QuickBooks Workforce Payroll. At 50 employees the same plans land between $287 and $400. ADP RUN, Paychex Flex, and Paylocity quote individually.