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Act 32 Earned Income and Net Profits Tax

In 1965, Act 511 commonly known as the “Local Tax Enabling Act” was enacted into law to provide Pennsylvania municipalities and school districts a means of funding their operations by levying certain types of taxes as defined by the Act. The Earned Income and Net Profit Tax is one of the taxes defined in Act 511, and under its authority, Upper St. Clair Township can levy a tax at the rate .50% on all employee compensation of its residents and net profits earned by its residents from unincorporated businesses and professions. The definitions of earned income and net profits were amended in 2002 through Act 166 to conform to the definitions found in the Pennsylvania personal income tax law. The Upper St. Clair School District also taxes the same type of income at the same rate of .50% on the aforementioned income. Also, there is a credit provision up to the full 1.00% combined rate for earned income and net profits taxes paid to other taxing bodies.

In 1979, the Township, a Home Rule municipality, adopted an additional tax on the same income base that has been detailed above, and it is commonly called the “Home Rule Tax”. This tax is levied under the authority of Act 62 of 1972 which is known as the ‘Home Rule Charter and Optional Plans Law”. Currently, the Home Rule tax rate is .30% on the defined income, but there is no credit provision for the earned income and net profits taxes paid to other taxing bodies. Thus, the overall current Earned Income and Net Profits tax rate for an Upper St. Clair resident is 1.30%, but the revenue shown in this account represents only the .80% levied for municipal purposes.

Since 2012, the Earned Income and Net Profits Tax as defined in Act 511 has been changed to be collected in accordance of Act 32 of 2008. The tax is to be collected in the following manner:

  • The consolidation of 560 local Earned Income Tax (EIT) collectors across the state of Pennsylvania into 65 countywide and 4 Allegheny County Regional Tax Collection Districts (TCD). Upper St. Clair Township and the Upper St. Clair School District have been placed in the Allegheny Southwest TCD. The Allegheny Southwest TCD contains all the local taxing entities that are geographically located southwest of the City of Pittsburgh and reside in Allegheny County. The membership of this TCD has 43 municipalities and 20 school districts for a total of 63 taxing entities.
  • The new collection system will require all employers in the state to withhold the earned income tax for each one of their employees irrespective of where they reside. The objective of the legislation is to create a streamlined tax collection system with uniform forms and procedures that will simplify the tax collection for companies that conduct business in Pennsylvania.
  • For Upper St. Clair taxpayers, all annual tax returns will be filed with the Allegheny Southwest TCD for tax years beginning in 2012 and thereafter. The appointed tax collector for the Allegheny Southwest TCD is Jordan Tax Service. The intent of the legislation is also to provide cost savings to each taxing district through consolidation of tax collection services.