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Background on DCED's EIT Collection Initiative

Act 32 Preamble

Act 32 enacted on July 2, 2008 amends the Local Tax Enabling Act, Act 511 of 1965, to consolidate the collection of Earned Income Tax (EIT) on a countywide basis.

The Act is a result of a 2004 report published by the Department of Community and Economic Development (DCED) – a three year study that documented the fragmentation, complexity and inefficiency of the earned income collection system.

Under the current EIT system, 560 taxing authorities collect nearly $1.9 billion in annual revenue for more than 2,900 local taxing jurisdictions. Pennsylvania currently has more taxing jurisdictions levying a local income tax than all other states combined. Due to inefficiencies in this system, it was estimated that as much as $237 million is lost annually. These are revenues that should be available to municipalities and school districts under current tax rates.

Additionally, the current system creates a burden on employers that leads to an increase in the cost of conducting business within the Commonwealth. The administration of the tax is fragmented, confusing and often unfair to taxpayers.

By reducing the number of collectors from 560 to 69, the local tax collection system will be streamlined and more efficient. Overhead will be reduced and tax revenues will be transferred more efficiently and expediently. Uniform forms and procedures required by the legislation will add to consistent and uniform collection.

Finally, enacted tracking, auditing and oversight requirements will provide accountability and add financial safeguards needed to restore integrity and transparency to the system.

Act 32 FAQ's 
To view a list of Frequently Asked Questions on Act 32, please click here.

Act 32 Timetable
To view the Act 32 Countywide Tax Collection Timetable, please click here.

Act 32
To view Act 32, please click here.

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As the custodian of the Tax Register, the official source of earned income tax withholding information for employers, the Governor’s Center for Local Government Services in the Department of Community and Economic Development (DCED) receives numerous inquiries from employers, taxpayers, municipalities, school districts, tax collectors and legislative offices about the collection of the EIT.

In 2001, as a result of numerous questions and concerns brought to DCED's attention in its custodial role, DCED formed a work group to study EIT Collection and make recommendations for improving the system. Based on that work and input from stakeholders, DCED released an analysis of the issue with recommendations in a September 2004 report entitled Pennsylvania’s Earned Income Tax Collection System, An Analysis with Recommendations.  Since then, DCED staff have given presentations across the State on this issue to legislative committees, employers, municipal and school associations, tax preparers and tax collectors.

Based on its report, feedback from legislators and stakeholders, DCED concluded that the income tax system needed to be reformed. Besides consolidation, reforms necessary included uniform withholding, forms and regulations; more accountability and financial safeguards and better oversight and enforcement.

DCED determined that consolidation of local income tax collection at the county level is a viable option because collection is already consolidated on a county-wide basis in 13 counties, and nearly a reality in another 24 counties. A map illustrating how consolidated each county is shows that 27 counties, or forty-one percent, are already 90% or more consolidated. The chart used to develop the map shows the exact number of tax collectors and municipalities in each county.

DCED worked with legislative staff, the local government associations, the business community, other stakeholders and the House Senate Finance Committee to craft legislation to reform and consolidate EIT Collection. This legislation was offered in the 2007-2008 legislative session by a bipartisan group of sponsors in House Bill 1550 and Senate Bill 1063. The goals of the legislation were to stem the loss of local tax revenues; make the system more employer friendly, fairer and less formidable for taxpayers, and to create as much uniformity and clarity in the system as possible.

Summary of EIT Collection Reform and Consolidation

The final version of the Earned Income Tax Collection Consolidation Act, Act 32 of 2008, when fully implemented, will result in a more efficient and consistent collection system. It will also make it easier for employers to fulfill their responsibilites, while making it more user friendly for taxpayers and recovering significant lost revenue for municipalities and school districts. The Act provides for consolidated collection, tax collection committees, the appointment of tax collectors, uniform withholding, distribution, appeals boards, violations by tax collectors, changes to the Tax Register, other administrative issues, audit and bond requirements, compliance tools and the transition from the old system to countywide collection. A summary that outlines the benefits of the reform bill for businesses and local governments is provided.  In addition, here is a per county breakdown of lost EIT revenue based on 2004 data and compiled by the Pennsylvania Economy League of Southwestern Pennsylvania.

 Access the Pennsylvania Economy League's EIT Loss Analysis Document.

Additional information related to the implementation of Act 32 will be added to this page as it becomes available. Please check back periodically.