What payroll deductions are employers required to withhold?

Payroll Tax Deductions Employers Must Withhold in Pennsylvania

Employers operating in Pennsylvania are responsible for withholding several mandatory payroll deductions from their employees' wages. Proper withholding ensures compliance with state and federal tax laws and smooth payroll operations.

Required Payroll Deductions

• Federal Income Tax: Employers must withhold federal income tax based on the employee’s Form W-4 and IRS tax tables.
• Social Security and Medicare Taxes (FICA): Withhold 6.2% for Social Security and 1.45% for Medicare from employee wages, matching these amounts as the employer.
• Pennsylvania State Income Tax: Employers must withhold Pennsylvania state income tax at a flat rate of 3.07% from employee wages.
• Local Earned Income Tax: Pennsylvania requires withholding of local earned income tax based on the employee’s work location or residence municipality. Rates vary by locality and must be verified with local tax authorities.
• Unemployment Compensation Fund Contributions: While these are employer-paid taxes, employers should ensure accurate payroll records to support unemployment insurance reporting.

Operational Considerations

• Employee Classification: Correctly classify workers as employees or independent contractors to determine withholding obligations accurately.
• Recordkeeping: Maintain detailed payroll records including withheld amounts, employee withholding certificates, and tax filings for audit readiness.
• Reporting and Remittance: Timely deposit withheld taxes to federal, state, and local agencies according to their schedules to avoid penalties.
• Payroll Automation: Use payroll software that supports Pennsylvania-specific tax rates and local tax jurisdictions to streamline withholding and reporting.

As of 2026, employers should regularly verify withholding rates and local tax requirements as these can change. Staying current helps maintain compliance and operational efficiency in Pennsylvania payroll management.