Please explain local taxes setup for payroll in PA

I'll be glad to share a few insights about Pennsylvania local taxes, @DS127.

To ensure and determine which employee's local state taxes to choose, I recommend contacting the PA local state tax agency to confirm what local taxes to select. You can contact them through this website: Pennsylvania Local Services Tax (LST).

That said, you would be able to pick the correct employee local state tax information in QuickBooks Online. You can also find more information about adding local taxes to your client's employees through these articles:

• Set up local taxes in Online Payroll.
• Payroll Tax Compliance Links.

Should you have other concerns about setting up employee taxes, please let me know. I'll get back to assist you. Stay safe and healthy!

Thanks for your quick reply, but honestly, I'm just trying to understand what the tick-off boxes mean in QBO! Did you see my screen shot?  I understand that in PA, the employer has to withhold at the higher local tax rate of employer location vs employee home.  I'm assuming (maybe I shouldn't?) that QBO will do this correctly if the setup is correct.

As I said in the post, employee works in Grove City PA and lives in a different PSD, Mercer. So there's 4 options to tick off on the Local Taxes part of the W4 in QBO PR.  Which do I check off?  Thanks.  

Allow me to jump into this thread and guide you on what you'll have to do, DS127.

Thanks for the screenshot. QuickBooks is dependent on state and IRS regulations. Taxes are calculated and reported differently depending on the laws of the particular states where your employee lives and works. There are some states with a reciprocity agreement, this is an agreement between your employee's work state and your employee's residence state. If your employee does give you a certificate of nonresidence, we do not deduct state withholding for the employee's work state. Thus, as mentioned by @Jovychris_A, it's better to reach out to your state so you'll be able to determine which local tax to withhold. This way, they can also guide you on how much is the rate that you'll have to pay.

Once, you've chosen the correct options and set up your employees' information, everything will just have to flow correctly. Again, check out your state information through this article: Payroll Tax Compliance Links.

Additionally, for you to take a closer look at your business and payroll information, I've added this article for your reference: Run Payroll Reports In QuickBooks Online. 

Reach out to us if you have any questions about local taxes. Remember, we're here to make sure we'll be able to address your needs. 

Thank you.  We're getting closer to what I'm asking....

I can't seem to make myself clear. I'm an accountant, I know all about the reciprocity agreements.  My post says I am asking about the local tax setup.  The localities have reciprocal agreements also within the state, but we withhold at the higher of the employer vs employee residence rate. Yes I get this.

The employees in this case ALL live in Penna.

The question again -- which boxes/circles do I tick off in QBO PR setup? I will re-attach the screenshot. The employee WORKS on Grove City and LIVES in Mercer.   That the first box should be checked, but I expected it to say Grove City, Mercer County where she works).  and then under PA School District Tax, the circle Mercer ASD (where she lives and pays the school district taxes) should be checked.  So is the first entry for the town where the employee works, and the second (PA School District taxes) for where she lives? Or something else?  Interestingly, I just checked and Grove City (where she works) has the higher SD taxes.

Can someone read this carefully and let me know?  THANKS.   I really think the screen should explain better.

screen shot here

Hello, DS127. 

Thank you for the screenshot you've provided here. It makes the situation more clear. When it comes to tax withholding, payroll primarily follows the rules of the state where the work is performed. If employees who live out of state come to your business for work, payroll would follow the withholding rules for the state where your business is located. These employees may owe income tax to their state of residence. Employers often withhold partial amounts for the residence state in addition to the worked-in state, or in some cases the employees handle that themselves when they file their personal income tax returns. 

Thus, there is an exception when two states have a reciprocity agreement wherein the governments agree that residents only owe income tax to the states where they live, not where they work. If this applies to your workers, you should already be withholding taxes for the state where your employees live. Without a reciprocity agreement, taxes may need to be withheld in both the state in which work is performed as well as the residence state. Check with your state Tax or Revenue Department for details.  

For additional reference about the local taxes, you may check these articles: 

• Payroll Tax Compliance Links 
• Set up local taxes in Online Payroll 

Keep in touch if you have any clarifications or other concerns. I’m always ready to lend a helping hand. Have a great week ahead.

Hello did you ever get a good answer to your question about local tax settings.  I have the same question.

Hi Modtrans. I figured it out, finally.  Try this:

1. On your state site (google something like "local payroll tax lookup [STATE]" or something like that.
2. Put the employee's home and work address, and it will tell you which rates to withhold at. Usually it's where the employee LIVES but sometimes it needs to be the WORK address. In my state, if the employee's work address has the higher rate, you have to withhold at that.
3. In my example, he works in  Greenwood Twp (not Greenville), and lives in Hempfield Twp where the school district is Greenville Area SD.  I need to set up his withholding using his home address.
4. In QBO PR, what they need to tell you is to check ONE BOX and ONE CIRCLE.  So in my example, I check the first BOX to show he lives in Hempfield.
5. I check the second CIRCLE to show his SD is Greenville.
6. I leave the last BOX blank (Greenwood Twp) bc that is where he works and we're not using that rate.

Does that help? I can't seem to get a screen shot attached but hopefully you get the idea. Basically (they should say this on the screen), you check ONE BOX and ONE CIRCLE. Maybe if we all give feedback Intuit will add that to help newer PR users get set up right. 

Good luck with this.

See the screenshot here.

Oh and one more point to be aware of when you are setting up local PR taxes.

CHECK which PR version you/your client has to see if QBO files the locals or not.

QBO does NOT file Local Services Tax (LST) - you have to do that manually at the local tax collector website.

I have one client where I have to file only the LST outside of QBO, and another where I have to file BOTH the local EIT (earned income tax) as well as the LST.  

Had a late filing before I figured this out....