Pennsylvania Payroll Tax and Compliance Guide for Employers

Pennsylvania employers withhold a flat 3.07% state personal income tax, withhold 0.07% of gross wages for unemployment compensation, pay UC tax on the first $10,000 of wages, and withhold local earned income tax and, where applicable, the Local Services Tax.

Last updated in source: 09/10/2025.

Overview

Pennsylvania levies a flat state personal income tax (PIT) of 3.07%, plus extensive local earned income taxes (EIT) and, in many jurisdictions, a Local Services Tax (LST). Employers must also pay Unemployment Compensation (UC) tax and withhold a small UC amount from employees' gross wages. Philadelphia imposes a separate City Wage Tax with its own rates and filing.

State tax requirements

Philadelphia also offers refunds and adjustments for time worked outside the city, and an income-based reduced rate for taxpayers with PA tax forgiveness.

Local paid sick leave

Philadelphia and Pittsburgh require paid sick time under local ordinances.

Payroll compliance

Paid sick leave and PTO

• Statewide: Pennsylvania has no statewide mandatory paid sick leave law, so PTO policies are generally employer-driven. Employers should still watch for local ordinances.
• Philadelphia: Covered employers must provide paid sick time under the city's Paid Sick Leave law. Typical accrual and coverage: employers with 10 or more employees must provide paid sick leave, commonly 1 hour per 40 hours worked up to 40 hours per year, and employers may frontload. Employers must post the city notice and follow documentation rules.
• Pittsburgh: The Paid Sick Days Act (PSDA) applies to covered employees working in the city. Historically accrual was 1 hour per 35 hours worked; recent amendments increase accrual effective January 1, 2026 to 1 hour for every 30 hours worked. Check local guidance for implementation details and accrual caps. Employers with Pittsburgh operations must comply with PSDA rules and posting requirements.

Overtime

• Statewide baseline: Pennsylvania follows the federal Fair Labor Standards Act (FLSA) for overtime. Nonexempt employees are generally entitled to time-and-a-half for hours worked over 40 in a workweek unless exempt under the FLSA salary and duties tests. There is no separate Pennsylvania overtime statute that reduces employer obligations below the FLSA; employers must comply with the stricter of federal, state or local rules where applicable.
• Tipped employees and special cases: follow FLSA rules for tipped employees and any PA DLI guidance for specific industries such as hospitality and healthcare.

Rest and meal breaks

Pennsylvania has no statewide law requiring paid meal breaks or rest breaks for private-sector workers beyond the FLSA. Employers should follow any sector-specific rules and honor local ordinances and documented company policy. If an employer provides breaks, short breaks of about 20 minutes are generally compensable under the FLSA.

Final pay and pay frequency

Pennsylvania has payroll timing rules for final pay in certain circumstances – for example, wages due on the next regular payday for employees who quit, and immediate pay for discharged employees under certain rules. Consult PA DLI for the specific timing requirements and any notice obligations.

State-mandated retirement and automatic enrollment

As of this update there is no fully implemented statewide mandatory private-sector retirement program in force in Pennsylvania. Keystone Saves, a payroll-deduct automatic IRA program, has been proposed and promoted by the PA Treasury, but employers should verify the current legislative status before assuming mandatory employer obligations. Public-sector retirement systems such as SERS and PSERS exist for state and public school employees. Employers without a retirement plan should monitor Keystone Saves developments and federal options including SECURE 2.0 incentives.

Wage deductions and garnishments

Employers must comply with PA wage deduction statutes and applicable federal garnishment rules. Voluntary deductions require proper written authorization. Court orders and child support garnishments must be honored per state and federal garnishment limits. See PA DLI and the PA courts for forms and procedures.

Recordkeeping and notices

Employers must maintain payroll, time and tax records per federal FLSA and state guidance. City ordinances such as Philadelphia's may require employer postings and recipient notices, including a paid sick leave poster and leave policies.

Compliance updates

07/01/2025 – Philadelphia City Wage Tax rate change

• Resident 3.74%, nonresident 3.43%.
• Applies to all employees who are Philadelphia residents or nonresidents working in Philadelphia.
• Employers should update withholding and continue quarterly filings via the Philadelphia Tax Center.
• Reference: City of Philadelphia – Wage Tax (Employers).

01/01/2025 – UC employee withholding confirmed at 0.07%

• Employers must withhold 0.07% of gross wages for employee UC in 2025.
• Applies to all covered employers and employees.
• Report and pay with quarterly UC filings.
• Reference: PA DLI, Calculating Contributions, Penalties and Interest (Employee Contribution Rate 2025).

01/01/2025 – UC new-employer rates

• 3.822% (non-construction) and 10.5924% (construction) on the first $10,000 of wages.
• Applies to newly liable PA employers until an experience rate is assigned.
• Reference: PA DLI UC Tax, How to File / UC Tax.

Resources and references

• PA Department of Revenue, Employer Withholding: guidance and reciprocity.
• PA Department of Labor and Industry, UC Tax (Employers): wage base, employee rate, new employer rates, forms and filing.
• PA DCED, Act 32 Local EIT and LST employer FAQs: PSD codes, collectors, rules.
• Philadelphia Department of Revenue, Wage Tax (Employers): rates, filing, refunds.
• PA New Hire Reporting (panewhires.com): employer reporting within 20 days.

Frequently asked questions

What is the Pennsylvania state income tax rate for payroll withholding?

Pennsylvania levies a flat state personal income tax (PIT) of 3.07%, and employers withhold at that flat rate. The rate is the same for every employee regardless of income level.

How much do Pennsylvania employers withhold from employees for unemployment compensation?

Employers must withhold 0.07% of an employee's gross wages for the employee unemployment compensation (UC) contribution, a rate confirmed for 2025. That is separate from the employer UC tax, which applies to the first $10,000 of each employee's wages.

Which states have payroll tax reciprocity with Pennsylvania?

Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. When an employee is a resident of a reciprocal state and submits the appropriate form, the employer withholds that other state's tax instead of Pennsylvania PIT.

What is the Philadelphia City Wage Tax rate?

Effective July 1, 2025, the Philadelphia City Wage Tax is 3.74% for residents and 3.43% for nonresidents who work in the city. Employers file and remit quarterly through the Philadelphia Tax Center.

How much local Earned Income Tax does a Pennsylvania employer withhold?

Under Act 32, employers withhold the higher of the employee's resident EIT rate or the nonresident (work location) rate, identified using PSD codes. The tax is then filed and remitted to the appropriate local Tax Officer or Collector, such as Keystone, Berkheimer or Jordan.