Local Services Tax
(December 20, 2007)
Effective January 1, 2008, the Local Services Tax (LST) replaces the Emergency & Municipal Services Tax (EMST). Like the EMST, the LST is assessed on each person employed within the political subdivision levying the tax.
Rates of Taxation:
A School District and its component municipalities (city, borough, town or township) may impose an LST. However, the combined rate of tax of a School District and one of it component municipalities can not exceed $52 on each person, for each calendar year, regardless of the number of political subdivisions within which a person may be employed.
Local Services Tax Employer Withholding:
If the political subdivision in which your business is located has levied a tax of $10 or less, then the total tax must be deducted at one time from the employee’s wages. A person who is subject to an amount in excess of $10 shall be assessed a pro rata share of the tax for each payroll period in which the person is engaging in an occupation within the political subdivision imposing the tax.
To determine the pro rata share of the tax to be withheld, divide the combined LST levied for the calendar year by the number of pay periods established by the employer for the calendar year. The employer shall round down the amount of tax collected each payroll period to the nearest one-hundredth of a dollar.
The employer shall collect the LST each payroll period, beginning with the first payroll period during which the person engages in an occupation within the political subdivision.
Employer Remittance of Collected Tax and Reporting of Collection Detail:
Employers are required to remit the LST withheld and file the required Quarterly LST Return thirty (30) days after the end of each calendar quarter. The LST Return shall list the name, address, social security number, physical address of the place of employment, number of payroll periods for which the LST was withheld and the amount being remitted per employee per quarter, as well as the total tax withheld for all employees.
Exemptions to the Local Services Tax:
If the tax levied is $10 or less, the political subdivision may exempt any person earning less than $12,000 from all earned income and net profit sources within the political subdivision.
The law requires Municipalities who levy the LST at a rate exceeding $10 to exempt any person whose total earned income and net profits from all sources within the Municipality is less than $12,000 for the calendar year in which the LST is levied.
If the School District in which the Municipality is located levies the LST, the income exemption may differ from the Municipality and can be anywhere from $0 to $11,999. Accordingly, an employee may be exempt from the Municipal LST and still be subject to the School District tax. Under that circumstance the School District share must be deducted in a lump sum.
In order to receive an upfront exemption, employees must file an annual upfront Exemption Certificate with the political subdivision levying the LST and with the employer. The exemption certificate would verify that the employee reasonably expects to receive earned income and net profits of less than $12,000 from all sources within the political subdivision for the calendar year for which the exemption certificate is filed. A copy of the employee’s last pay stub or W-2 form from employment within the political subdivision for the year prior to the calendar year for which the employee is requesting an exemption must be attached to the exemption certificate. Employers must make upfront exemption forms readily available to employees at all times and provide new employees with the forms at the time of hiring.
Upon receipt of an upfront exemption form and until otherwise instructed by the political subdivision imposing the tax, employers must stop withholding the LST for the specific calendar year from employees for whom the exemption applies.
Employers must restart withholding the LST from an employee who files an exemption certificate in the following circumstances: if instructed to do so by the political subdivision levying the LST; if notified by the employee that they are no longer eligible for the exemption; or if the employer pays the employee more than $12,000 for the calendar year.
Employers restart withholding of the LST by withholding a lump sum equal to the amount of tax that would be due from the beginning of employment in the calendar year plus the payroll amount due for that payroll period. Except for monitoring when an employee who has filed an exemption certificate earns more that $12,000, the intent is that employers are not responsible for investigating exemptions, monitoring tax exemption eligibility or exempting an employee from the tax.
The following persons are also exempt from the LST:
- Any person who is an honorably discharged veteran with 100% service-connected disability
- Any member of a reserve component of the armed forces called to duty
Concurrent Employment:
If a taxpayer engages in more than one occupation during a payroll period or is required to be in more than one political subdivision within the same pay period, an employer shall not withhold the LST if the employee provides a recent pay statement from another employer that includes the employer name, the length of the payroll period and the amount of LST withheld. Otherwise, the employer is required to withhold and remit the tax to the collector in the political subdivision considered the principal place of employment.
Refund of Local Services Tax:
Any person who believes they are entitled to a refund of the LST in total or in part must file a Request for Refund Form which may be obtained from the employer, the political subdivision or the tax collector. Any person requesting a refund must provide all required substantiation of earnings to the collector. A copy of this form has also been included for your convenience.
Any required forms can be found by searching for Local Services Tax at NewPA.com.
Should you have any further questions, please contact your tax advisor at Parente Randolph, LLC.
