Pennsylvania withholding, unemployment, local EIT, LST, and new hire rules for 2026.
Pennsylvania looks simple because the state income tax rate is flat, but payroll setup gets tricky fast because employers also deal with unemployment compensation, employee UC withholding, local earned income tax, local services tax, PSD codes, and new hire reporting.
3.07%
PA personal income tax withholding is generally a flat 3.07% of compensation.
$10,000
Employer UC contributions apply to taxable wages up to the Pennsylvania UC taxable wage base.
0.07%
The 2026 employee UC contribution rate is 0.07% of gross wages.
PSD based
Act 32 local withholding depends on resident and work-location PSD codes and EIT rates.
Pennsylvania payroll taxes at a glance
| Topic | 2026 rule | Payroll action |
|---|---|---|
| State income tax withholding | Withhold PA PIT at 3.07% from resident employees and nonresident employees earning income in Pennsylvania. | Register for employer withholding and apply the flat state rate to PA-taxable compensation. |
| Employer UC | Employer contribution is assigned by PA DLI and multiplied by taxable wages up to the $10,000 wage base. | Use the employer’s UC-657 Contribution Rate Notice and the state wage base. |
| New employer UC | For 2023 and thereafter, newly liable contribution rates are 3.8220% for non-construction and 10.5924% for construction. | Use the correct industry category until an experience rate applies. |
| Employee UC withholding | 2026 employee contribution rate is 0.07% of gross wages. | Deduct and report employee UC contributions from each employee’s gross wages. |
| Local earned income tax | Employers with PA worksites withhold local EIT under Act 32. | Collect the Residency Certification Form, compare resident and work-location rates, and withhold the higher EIT rate. |
| Local services tax | Employers with PA worksites may need to withhold and remit LST for employees working in PA. | Use the local tax collector and worksite rules to configure LST deductions and exemptions. |
State withholding setup
The Pennsylvania Department of Revenue says entities are required to withhold Pennsylvania personal income tax at a flat rate of 3.07% of compensation from resident and nonresident employees earning income in Pennsylvania. Deposit frequency depends on total withholding, with quarterly due dates for employers under the quarterly threshold and more frequent schedules for larger withholding amounts.
Unemployment compensation payroll setup
Pennsylvania unemployment compensation has both employer and employee payroll pieces. Employer contributions are based on the assigned employer rate multiplied by taxable wages up to the state wage base. Pennsylvania DLI lists the taxable wage base as $10,000 for 2018 and thereafter.
Employers covered under PA UC law are also responsible for withholding employee contributions from gross wages. Pennsylvania DLI lists the 2026 employee contribution rate as 0.07%.
Act 32 local earned income tax and PSD codes
Act 32 local earned income tax is where Pennsylvania payroll gets operationally messy. DCED says employers with worksites in Pennsylvania are required to withhold and remit local EIT and LST for employees working in Pennsylvania. Employers complete a Residency Certification Form for each employee, compare the employee’s total resident EIT rate to the work-location nonresident EIT rate, and withhold the higher rate.
- Collect the Residency Certification Form at hire and when the employee’s name or address changes.
- Use the employee residence PSD code and work location PSD code.
- Look up EIT rates and tax collector details using DCED tools.
- Withhold the higher of resident EIT rate or work-location nonresident EIT rate.
- Remit to the proper local tax collector for the worksite location.
New hire reporting
Pennsylvania employers report newly hired or rehired workers through PA CareerLink. The state service page supports manual entry for 10 or fewer new hires, file upload for 10 or more, or secure file transfer. Multi-state employers may report in the state where employees work or select one state and report all new hires electronically to that state.
Pennsylvania is not just a flat-tax state.
The state PIT rate is easy to remember, but real payroll setup depends on UC wage-base logic, employee UC deductions, PSD codes, EIT rate comparisons, LST rules, tax collectors, and employee residency/work-location changes.
Pennsylvania payroll setup checklist
- Register for Pennsylvania employer withholding.
- Register for PA unemployment compensation if liable.
- Enter the PA PIT withholding rate of 3.07%.
- Enter the employer UC rate and $10,000 taxable wage base.
- Set employee UC withholding at 0.07% for 2026.
- Collect Residency Certification Forms and PSD codes.
- Configure local EIT as the higher of resident or work-location nonresident rate.
- Configure LST if applicable for the worksite.
- Report new hires through PA CareerLink.
Pennsylvania payroll FAQ
What is the Pennsylvania payroll withholding rate?
Pennsylvania generally requires employer withholding at a flat 3.07% of compensation for resident employees and nonresident employees earning Pennsylvania income.
What is the Pennsylvania UC wage base for 2026?
Pennsylvania DLI lists the taxable wage base as $10,000 for 2018 and thereafter.
What is the Pennsylvania employee UC contribution for 2026?
The 2026 employee UC contribution rate is 0.07% of gross wages.
How does Pennsylvania local EIT withholding work?
Under Act 32, employers generally compare the employee’s resident EIT rate with the work-location nonresident EIT rate and withhold the higher of the two.
What are PSD codes?
PSD codes are six-digit political subdivision codes used to identify Pennsylvania municipalities for local earned income tax withholding and remittance.
Practice Pennsylvania payroll as a system.
PrepToPay helps payroll pros connect state withholding, unemployment, local taxes, wage bases, and reporting rules to realistic payroll questions.