Earned Income Tax (EIT) Collection Consolidation

On July 2, Governor Rendell signed into law Senate Bill 1063, creating for the Commonwealth an EIT collection system that will benefit employers and employees, as well as Pennsylvania municipalities and school districts.   This success was accomplished by the ongoing efforts of the Pennsylvania Economy League of Southwestern Pennsylvania and the Greater Pittsburgh Chamber of Commerce in partnership with the Pennsylvania Department of Community and Economic Development (DCED) and others.

The research and analysis, education and outreach, coalition building and advocacy efforts of these two Conference affiliates – along with the strong engagement of private sector leadership through the Regional Investors Council – were crucial to achieving this reform. SB 1063 streamlines and standardizes EIT collection practices in order to reclaim some $237 million per year in tax revenue previously lost due to the lack of an efficient and accountable system. This move also signifies new opportunity to attract business investment to the Commonwealth.

The Challenge:

Currently, Pennsylvania is unrivaled in the number of local EIT collectors, 560, and had more taxing jurisdictions than all other states combined.  According to an Economy League analysis on the impact of fragmented tax collection, this patchwork approach was costing local governments and school districts tax dollars – approximately $237 million annually – and putting an undue burden on taxpayers and employers.

The Solution:

Going forward, a streamlined EIT collection system will provide:

• reduction of the number of tax collectors from 560 to 69;

• standardized collection practices, coordination, reporting and accountability among and between jurisdictions and collectors;

• more tax revenue for municipalities and school districts;

• a faster, straightforward filing process for employers (a company with operations in multiple districts will file only one return, instead of multiple ones, in its headquarters location);

• mandatory EIT withholding for all employees, eliminating the burden on some employees to remit EIT payments themselves;

• potential tax reduction, since other taxes were inflated to compensate for money lost because of the previous, fragmented approach to collecting EIT; and

• a more competitive, business friendly environment. Diminished administrative costs and uncomplicated tax filings will be attractive to both existing businesses and companies considering locating in the Commonwealth.

Read the press release about the Passage of SB 1063. (PDF file)

*Earned income tax is levied on wages, salaries, commissions, net profits from the operation of a business, or other compensation.