What taxes apply to a new small business?

Taxes Applicable to New Small Businesses in Pennsylvania

Starting a small business in Pennsylvania involves understanding several tax obligations to maintain compliance and optimize operations. Below is an overview of the primary taxes that new small businesses should consider.

State Taxes for Small Businesses

• Pennsylvania Corporate Net Income Tax: Applies to corporations operating in Pennsylvania. The current rate is 9.99% of taxable income. Sole proprietorships and partnerships are generally exempt from this tax but must report income on personal returns.
• Personal Income Tax: For pass-through entities like LLCs, S-corporations, partnerships, and sole proprietors, business income passes through to the owner's personal income tax return. Pennsylvania has a flat personal income tax rate of 3.07% as of 2026.
• Sales and Use Tax: Businesses selling tangible goods or certain services must collect Pennsylvania sales tax at a rate of 6%. Local taxes may add up to 2% more depending on the municipality.
• Employer Withholding Tax: If the business has employees, it must withhold Pennsylvania state income tax from employee wages and remit it regularly.
• Unemployment Compensation Tax: Employers pay this tax to fund state unemployment benefits. Rates vary based on experience and industry.

Local Taxes and Other Considerations

• Local Business Privilege or Mercantile Taxes: Some cities and municipalities impose additional business taxes. For example, Philadelphia requires a Business Income and Receipts Tax (BIRT).
• Property Taxes: If the business owns real estate or tangible personal property, local property taxes may apply.

Operational Recommendations

• Register for Taxes: Register your business with the Pennsylvania Department of Revenue and the Department of Labor & Industry to obtain necessary tax accounts.
• Set Up Payroll Systems: Automate withholding, unemployment tax payments, and reporting to stay compliant and reduce administrative burden.
• Maintain Accurate Records: Keep detailed bookkeeping records for income, expenses, payroll, and tax filings to simplify reporting and audits.
• Consult Tax Professionals: Engage accountants or tax advisors familiar with Pennsylvania tax regulations to optimize tax strategy and ensure compliance.