Transcript 2008 PA Local Services Tax - SEPA

2008 PA Local Services Tax
SEPA Chapter Meeting
November 14, 2007
Dorothy Laskey, CPP
Vertex, Inc.
[email protected]
Local Services Tax (LST)
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Senate Bill 218 was signed into law on June
21, 2007 and named Act 7 of 2007
Act 7 amends the Local Tax Enabling Act to
make major changes to the Emergency and
Municipal Services Tax (EMST)
LST is effective 1/1/2008
Major Changes
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Exemptions from LST
Proration of LST
Restart Withholding and Catch-Up Provision
Standardized Forms
Local Ordinance Changes
Unchanged Regulations
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$52 statewide maximum LST
Income = earned income + net profits
Priority of claims to collect LST
Role of DCED
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Standardize forms
Provide technical assistance to facilitate the
administration of the LST
Reduce the burden of implementation,
accounting and compliance
Maintain the Local Tax Register
What Act 7 means to employees
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Before Act 7
After Act 7
$52 one time deduction in the
beginning of the year
$2* deduction per pay
No tax withheld until earnings
exceeded $12,000
LST is deducted unless low
income exemption certificate was
filed with the employer
Paid the tax while on active
military duty
Exempt from LST while on active
duty (with filed exemption form)
Paid the tax as a disabled
veteran
Exempt from LST (with filed
exemption form)
*for employees paid bi-weekly and working in a $52 LST jurisdiction
What Act 7 means to employers
Act 7 requires employers to:
1. Determine whether to withhold prorated or lump sum LST.
2. Treat each political subdivision separately for low income
exemption and limits
3. Treat all exemptions (low income, military, and non-primary
employer)
4. Catch up withholding
5. Monitor YTD earnings per locality and verify that earnings are
within the low income limits.
6. Track pay periods and localities in which employees worked
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Priority of claim
LST shall be withheld for the primary place of employment.
The priority of claim to collect the LST is as follows:
(1) Where the individual maintains his or her principal
office or is principally employed;
(2) Where the individual resides and works; and
(3) Where the individual is employed that is nearest in
miles to the individual’s home.
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Scenario: Primary work location
Do you owe LST to different
jurisdictions if you work in multiple
locations in PA?
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Example: Primary place of employment
Week
Primary work
1
A – Corporate office
B – Customer (same locality as home)
C – Customer (different from home)
A- Corporate Office
2
B – Customer (same locality as home)
C – Customer (different from home)
B - Customer (same
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C – Customer (different from home)
D – Home
D - Home
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Work locations
E – Company’s office in NJ
locality as home)
No LST liability
Example: Tax liability per week (weekly
pay schedule)
11
Week
Primary work
LST Rate
LST Withheld
1
A
$52
$1.00
2
B
$26
$0.50
3
D
$15
$0.28
4
No LST liability
$0
$0.00
Before and After Act 7
Before
Act 7
After
Act 7
12
Week
Primary work
EMST Rate
EMST Withheld
1
A
$52
$52.00
2
B
$26
$0
3
D
$15
$0
4
No LST liability
$0
$0
Week
Primary work
LST Rate
LST Withheld
1
A
$52
$1.00
2
B
$26
$0.50
3
D
$15
$0.28
4
No LST liability
$0
$0.00
Exemptions from LST
1.
2.
3.
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Military Exemption
Low Income Exemption
Non-primary Employment
1.
Military Exemption
1.
Exempts
2.
Does not exempt
Form
Back up
documentation
Exemption coverage
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Members of the armed forces called to
active duty
Honorably discharged disabled veterans
Reservists called for training duty
Exemption Certificate
Military paperwork
Statewide
*file exemption for each locality employed
Question: Military Exemption
Clarification of “Any time during the taxable
year”
-Page 3, line 15 of SB 218, PN 1056
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2.
Low Income Exemption
Exempts
Earned less than the low income exemption
within the jurisdiction for the previous year
and expect to earn less than the low income
exemption amount within the jurisdiction
Does not exempt
Received total income greater than the low
income exemption amount within the
jurisdiction or did not receive income for the
previous year
Form
Back up
documentation
Exemption coverage
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Exemption Certificate
W2 or last pay stubs from the previous year
Political subdivision in which the exemption was
filed
2.
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Low Income Limits
School District OR
Municipality Tax Rate
Exemption Rules
Exemption Limits
$10 or less
Optional to have a low income
exemption.
Low income limit = any amount
up to $12,000
greater than $10
Mandatory to have low income
exemption
Low income limit = $12,000
Exception from Enacting Low Income
Exemption in 2008
A municipality that reduced its real estate
property tax by at least 25 percent can delay
implementing the low income exemption until
2009
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Low Income Exemptions by Political
Subdivision
Individual expects to receive income greater than $9,000 but less than $12,000
LST Amount
School District portion of LST
$
5.00
$
9,000.00
NO
Municipality portion of LST
$
47.00
$
12,000.00
YES
Combined LST
$
52.00
LST Deduction per pay
School District LST
Municipal LST
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Low Income
Exemption Limit
Low income
Exemption
Filed?
Prorated LST
(combined LST >$10)
NONE
Example: LST withholding with low
income exemption
•Exempt from paying $47 Municipal LST
•Liable for $5 SD LST
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School District
LST
$5.00
Pay Schedule
LST Withholding
Weekly (52 pays)
$0.09
$5.00
Biweekly (26 pays)
$0.19
3.
Non-primary Employment
Exempts
Does not exempt
Form
Back up
documentation
Exemption coverage
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Individuals are not subject to LST withholding
by a non-primary employer if a primary
employer is withholding LST
Individuals whose primary employer is not
withholding LST
Employment Certificate
Recent pay stub from the primary employer
Statewide
*file exemption for each locality employed
New LST Provision: Proration
Proration depends on the provisions of the combination
of the school district and municipality:
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Combined LST Rate
Proration vs. Lump Sum
$10 or less
May prorate or withhold at lump
sum
greater than $10
Prorate LST
Proration Formula
( Combined LST Rate divided by the total
number of pay periods established by the
employer for the calendar year ) rounded
down to the nearest 100th of a dollar
[penny].
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Scenarios: LST Proration
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Divide by a different pay schedule (ex.
Quarterly)
Employee authorizes a lump sum withholding
Total LST withheld for an employee who
worked from week 11 to week 52
Example LST Prorations
Combined LST
Rate
Number of
Pays
LST deduction
per pay
Annual LST
$52
52
$1
$52
$47
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$1.80
$46.80
($0.20 short)
$35
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$2.91
$34.92
($0.08 short)
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New LST Provision:
Restart Withholding
Employers must restart withholding when a
low income exemption becomes invalid.
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Questions: Proration
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How does it affect cash flow for jurisdictions?
How do jurisdictions reconcile each
individual’s annual LST paid?
Possible impact of proration
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Loss of tax revenue due to misc. tax not withheld.
Budget adjustments due to redistribution of tax
revenues.
Administrative burden for tax collectors.
Administrative burden for employers.
Increase in cost of collecting and administering tax.
Could loss of revenue cause other tax increases?
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When to Restart Withholding
“Restart” withholding of the LST when a low income exemption
becomes invalid due to any of the following circumstances:
1)
2)
3)
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If instructed to do so by the political subdivision
levying the LST;
If notified by the employee that they are on longer
eligible for the exemption; or
If the employer pays the employee more than
$12,000 for the calendar year.
3 Steps for Restart Withholding
Employers “restart” withholding of the LST by
withholding:
(1)
(2)
(3)
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A lump sum amount equal to what would have been
withheld (Catch Up withholding) had the exemption
not been claimed in that year
The prorated LST rate for the current pay.
For subsequent pay periods, the remaining prorated
LST rate according to the employer’s pay period
schedule.
Catch Up Withholding for Multiple
Work Locations
Pay Period # Local Work Jurisdiction
1
Local A - liability for Local A only
2
Local B - liability for Local B only
3
Local B - liability for Local B only
4
Local A - liability for Local A only
Catch up for Local A = Weeks 1 and 4 only
Catch up for Local B = Weeks 2 and 3 only
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Restart Withholding by Exemption
Types
Withholding when the exemption becomes invalid:
Type of
Exemption
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Withholding
Military
No Catch up
prorated LST for current and subsequent pays
Low Income
Withhold Catch up
prorated LST for current and subsequent pays
Non Primary
Employer
No Catch up
prorated LST for current and subsequent pays
Scenarios: Catch Up
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Low income exemption for 2 or more
locations become invalid at the same time
Military exemption goes into effect when low
income exemption becomes invalid
Non primary employer exemption goes into
effect when low income exemption becomes
invalid
Data to Track for Catch Up Withholding
Track the following data for each political subdivision in
which the employee works:
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Effective date of liability
Effective date of low income exemption
Low income exemption amount
Pay periods in which the employee worked
within the political subdivision
Due Dates for Ordinances
Type of Change
Due Date to Enact the LST
Ordinance
New Tax (LST)
November 30, 2007
Change rate for OPT/EMST
December 11, 2007
Existing EMST
No change in rate but enacted a new
LST or increased the rate of OPT since
12/1/04
No Change
No change in rate and did not change
OPT/EMST since 12/1/04
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December 31, 2007
N/A- Allowed to keep
OPT/EMST
Additional Information
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Forms are available on www.NewPA.com
No immediate plans to publish the exemption
amounts or proration provisions on the LST
Register
Resources
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Local Services Tax
LST reference
http://www.NewPa.com
http://www.lgc.state.pa.us/deskbook.html
Governor's Center Staff
Inquiries/questions regarding the programs and services provided by the
Governor’s Center for Local Government Services can be directed to:
Department of Community and Economic Development
Governor’s Center for Local Government Services
4th Floor, Commonwealth Keystone Building
400 North Street
Harrisburg, PA 17120-0225
888-2-CENTER (888-223-6837)
For email, send questions to the Customer Service Center.
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