Dear Valued CompuPay Client,

We have just been notified of a change in Pennsylvania local taxes. Pennsylvania has renamed their municipal taxes effective January 1, 2008. Municipal taxes were formally known as Occupational Privilege Tax (OPT) or Emergency and Municipal Service Tax (EMST). As of 2008, these local taxes will be known as Local Services Tax (LST). Appropriate changes will be made in our tax system to reflect this name change. These local service taxes (LST) are not the same as local earned income taxes, but rather taxes levied based on the work location, sometimes referred to as "head" taxes.

Additionally, the method in which some of these local service taxes are collected from employees is changing effective January 1, 2008. In the past, OPT or EMST taxes were withheld in an annual lump sum from each employee based on their work site. As of 2008, employers are only required to withhold the LST on a per payroll period basis for those payroll periods in which the taxpayer-employee is employed. Examples of the pro-rata calculation are displayed in the Excel file accessible through the link below.

There is also a new mandatory low-income exemption for any local services taxes that exceed $10.00 annually for any employees who earns less than $12,000.00. If an employee provides to their employer an exemption certificate or proof of withholding from another principle employer, the employer must cease withholding of LST.

What do you need to do?

• Determine if the employee will earn at least $12,000 annually and set up deductions or not based on evaluation.

• PayLoad/PowerPayroll/XpressPayroll Clients: The Tax Authority Set-Ups of the localities in the chart have been altered to be based on payroll cycle frequency rather than a flat amount. You will need to update the deductions in the payroll system for each employee to reflect the new per payroll deduction amount.

Click below for a listing of the new amounts per local taxing authority. If you have any questions, please contact your client services team.