State Local Taxes Not being withheld from employee Paycheck

I can see you've been through a lot fixing this issue about PA local taxes not being withheld in QuickBooks Online Payroll, @lapoore.

Let's review your employees' profiles and make sure to select the local taxes box so QuickBooks deducts the PA Local Taxes from your employees' paychecks. To do so, follow these steps:

1. Open the Payroll menu. Then, go to Employees.
2. Locate and select your employee's name from the list.
3. Go to the Tax withholding section and click on Edit.
4. Put a checkmark for the Local taxes box.
5. Once done, click on Save.

See the photos below for reference:

For more information about handling PA Local Taxes, feel free to read this module: PA Local Services Tax (LST).

You can also learn more about how to run, print, and customize payroll reports in QuickBooks Online Payroll.

Loop me in if you need extra help with payroll or with any QuickBooks-related. I'm always here to assist you at any time of the day. Take the best care!

I do have the employee set up correctly.  Always has been... see below

Hi there @lapoore ! I just wanted to check in and let you know that we haven't forgotten about this! My colleagues and I are doing some extra research on this this morning and will reply here again when we have more information. Thanks for hanging in there with us. 

Thanks, I hope that someone can come up with the fix soon.

@lapoore Alright! I got a response back from our product team on this. It looks like, for right now, state local taxes for PA are not withheld in QBO Payroll. Our team is looking into ways to add this ability in the future, but for now, PA local taxes must be withheld manually. 

I've shared this conversation with them to use as a reference when working on future updates. 

Please don't hesitate to reply again if you have other questions. I'm happy to provide any information I have or pass along any other feedback to the team. 

@Ami_D  How would I manually withhold PA local taxes?  We thought of maybe a deduction but then it wouldn't be on their W2. 

Thanks, Laurie

We are also having the same exact issue.  We are a MD employer with a PA resident employed for us.  The employee is set up correctly but QB can't seem to figure this out.  Did they ever provide instructions to manually deduct for your employee?

Hi there, jthood.

As mentioned by Ami_D above, you'll have to manually withhold the local taxes for the state of Pennsylvania. To do this, you'll need to create a deduction item tand hen add it when running your payroll. Here's how:

1. Go to the Payroll menu.
2. Select the Employees tab, then choose an employee.
3. From the Deductions & contributions section, click Edit.
4. Select Add deduction/contribution, then choose a type of deduction..
5. Add a description as needed, then choose whether you want the deduction to be calculated as a flat amount or Percentage of gross pay. 
6. Enter the amount or percentage.
7. Click Save, then Done.

Keep me posted if you have further questions about taxes and payroll. I'm always here and ready to assist.

According to our accountant, the above "fix" is not acceptable as the deduction will not appear on the W-2 form.  Our Accountant also has spoken with several people on your Help Team, escalated to Level 3 and still not getting an acceptable solution.  I KNOW we are not the only MD employer with PA residents using Intuit that are having this problem.  Please advise when your website will be corrected otherwise, we may discontinue your payroll service. 

I know where you're coming from, @jthood. As a customer myself, I'd also like to have my employees' state (PA) local taxes withheld when running payroll in QuickBooks Online Payroll (QBOP). 

Let me help you send feedback and product recommendations so you can relay your experience using QBOP and aid in making the payroll platform better.

For the time being, as mentioned by my colleagues above, state local taxes for PA are not withheld in QBOP. While our product team is working on a fix, you'll need to withhold it manually to keep your payroll data accurate. 

In line with this, I encourage you to submit product recommendations. We take your suggestions as opportunities to improve the various features of our products. Your valuable feedback will be forwarded and reviewed by our Product Development team to help enhance your experience while using the program. To send one, here's how:

1. Go to the Gear icon.
2. Select Feedback.
3. Type in your recommendation in the Share your feedback field.
4. Click Next.
5. Follow the on-screen instructions to complete the process. 

On top of that, I'd recommend visiting this page to keep you updated with the latest software improvements and enhancements with QBO: Customer Feedback for QuickBooks Online.

Also, you may want to check out one of our Help pages as your reference to guide you in managing your business's growth and payroll taxes and transactions using QBOP: QuickBooks Learn and Support. It includes QuickBooks Help articles, Community discussions with other users, and video tutorials, to name a few.

I'm all ears if you have other feedback and feature concerns in QBOP. You can drop a comment below, and I'll gladly help. Take care, and I wish you continued success, @jthood.

We are also having this problem as a Maryland employer with employees living & working in various states. Last year, the employee's residency address & work address were both PA. But now that I have changed the employee's work address to Maryland, the PA Local taxes are not being withheld from his paycheck.

Same problem. We are a Maryland employer with employees living and/or working in various states. Last year, one of our employees lived & worked in PA. This year, that same employee lives in PA but now works in MD. All of a sudden, PA local taxes are no longer being withheld. Why?? PA state taxes are still being withheld.

Agree that this is not a fix. W2 will not be correct.

I know this thread is 2 years old but I'm kind of crossing my fingers here. I just migrated to QuickBooks online and i am having the same PA LST tax problem. I was able to have it set up fine in my QuickBooks desktop, tracked fine, accrued in the payroll liabilities screen. When i migrated my data, it took my already created LST tax and imported it to a deduction and it's withholding each paycheck but QBO isn't recognizing it as a tax liability. It is also weird because the employee generated PA Local Tax category doesn't even appear as an option on my 2 PA employee paychecks. I tried to merge my Local account with the QBO generated account, did not work. Support is no help. In desktop you had all these options when setting it up and how to track it and now they took any payroll liability adjustment freedoms away. I'm worried about W2s at the end of the year and its not going to show up on there. I'm current doubling all my work, entering everything on QBO so my bosses have access and can see what they want but I'm also keeping my desktop version going because come January, I don't want to be in a pickle. 

So, sorry for ranting but I guess my question is......have you figured out a solution to this yet?

Nope I have not. I basically am doing the same thing as you. I have as a deduction. As for the W2 I create a pdf and put in the local tax info manually so the employee has it and I always use a spreadsheet to upload the W2s to the PA Local Bureau so there is never an issue with the W2s. And I figure the IRS doesn’t need the Pa local info. It is very frustrating. Oh and I have another client that has just one PA employee so I just figure up what the tax would have been for the quarter and prepare a voucher and the employee pays it themselves. Good luck 

I actually think I figure out their problem. LST is the tax payer is pay for working in a PA county, Local EIT is what residence pay. That’s why if their work place is in PA it will work, employers a required to withhold that. Out of state employers are not required to withhold the EIT. QB reciprocity agreement is only making sure PA residence working in Maryland are paying PA income tax. I put the link at the bottom, baffles me I talked to all these intuit experts and had a whole team looking into it and in the last two years, at least, I haven’t seen anymore mention that LST and EIT are two different taxes. 

I think I figured it out. LST is for people working in PA and EIT is for PA residents. Employers are required to withhold LST if they have an employee working in PA but out of state employees with PA residence working for them are not required to withhold EIT. Baffles me that since I have been searching multiple post over multiple years about this, I personally have talked to at least 3 intuit experts, and they have a whole team looking into it for me, I haven’t seen anyone mention that PA Local Service Tax (LST) and Local Earned Income tax (EIT) are two different taxes. I guess QB reciprocity agreement only makes sure they’re getting PA income taxes withheld instead of MD. 

https://dced.pa.gov/local-government/local-income-tax-information/local-withholding-tax-faqs/

Oh, I didn't even take notice that you were referring to the LST.  I was referring to the EIT.  I have one client that is a MD employer and they have a PA employee we always withheld PA Local EIT for her in payroll inside QBO. and one day it just stopped withholding it and support told me because the employer is not required to withhold the tax that they can't set it up.  It was doing it before one of their update and just stopped.  They need to fiqure it out.  MD employers are not require to withhold the LST only PA employers.