Pennsylvania registration and tax info

Having payroll issues? Learn how to troubleshoot blocked payroll.

Setting up payroll in Pennsylvania for the first time

Before you can pay employees in a new state, you must register with the state’s tax agencies. This lets you file and pay the right taxes.

🎥 Watch a quick video to learn how registering in a new state works
📘 See our blog for full state business guides
🤝 Let Gusto register for you

Use the dropdowns below to learn more. Use CMD + F (or CTRL + F) to search for words in the article.

Let us register for you

Gusto works with Middesk to help you register with tax agencies in new states.

For now, this includes: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

How it works—an overview

Get help registering for state taxes

We can help you register for state tax accounts after you:

Add a work address in the new state in Gusto.
Assign that work address to a new or existing employee.
Check your Home page for a to-do. If the state requires it, register with the Secretary of State and tell us when it's done.

Cost, timeline, and who can register

The cost, steps, and turnaround time depend on the state. Gusto will show you these details when you start the registration process.

Middesk cannot help if your company is:

A non-profit that’s not a 501(c)(3)
A business that left a PEO (Professional Employer Organization)
A business that bought another business already registered.
A business that changed its legal entity type (like from LLC to Corp)
A Limited Partnership (LP) or Limited Liability Partnership (LLP)

What the process looks like

You give us some basic business information.
Middesk will check your info.
Your registration is usually submitted within two business days.
- State registration with Middesk includes:
  - State income tax (withholding)
  - State unemployment insurance
- What's not included:
  - Local agency registration
  - Third-Party Agent (TPA) access or Power of Attorney (POA) authorization.
    - If setting up TPA requires online agency portal access:
      - If Middesk has to create an agency account to register your business, you can find the agency portal login details on the Taxes & compliance > Tax setup page in Gusto once registration is complete.
      - If Middesk does not need to create an account, but the agency requires TPA to be set up through their portal, you need to set up the agency portal accounts on your own.
- After we submit your registration, you may need to answer a verification call from the agency to confirm that the registration request is legitimate.
When Middesk gets your tax account information back after registering, they'll enter it in Gusto for you.

Third-Party Access (TPA) and Power of Attorney (POA)reminder

Some state agencies need Gusto to have TPA or a POA on file to file and pay your taxes. Usually, Middesk does not set this up, so you’ll have to do it yourself after registration.

Check the state registration articles to see if TPA or POA is needed and how to set it up. If there's no “Authorize Gusto” section, then TPA is not needed right now.

If setting up TPA requires online agency portal access:

If Middesk has to create an agency account to register your business, you can find the agency portal login details on the Taxes & compliance > Tax setup page in Gusto once registration is complete.
If Middesk does not need to create an account, but the agency requires TPA to be set up through their portal, you need to set up the agency portal accounts on your own.

Get started with state tax registration in Gusto

The cost, steps, and turnaround time depend on the state. Gusto will show you these details when you start the registration process.

Need help with registration questions?

If you’re not sure how to answer one of the registration questions, check Middesk’s Help Center or email them at [email protected].

How to get started with state tax registration in Gusto:

Sign in to Gusto.
Go to Taxes & Compliance and select Tax setup.
Under “[State name] Tax Setup”, find the "Let us help you register" banner and click Learn more.
- The state will only show up if you’ve added a company work address there and assigned an employee to it.
Review the price, process, and how long it'll take. We will not charge you until you send in your order.
- State registration with Middesk includes:
  - State income tax (withholding)
  - State unemployment insurance
- What's not included:
  - Local agency registration
  - Third-Party Agent (TPA) access or Power of Attorney (POA) authorization.
    - If setting up TPA or POA requires online agency portal access:
      - If Middesk has to create an agency account to register your business, you can find the agency portal login details on the Taxes & compliance > Tax setup page in Gusto once registration is complete.
      - If Middesk does not need to create an account, but the agency requires TPA to be set up through their portal, you need to set up the agency portal accounts on your own.
Click Get started on Middesk.
- Reminder: We can only register for you if you do not already have a state account.
Answer some questions about your business, like:
- Basic info
- Contact info
- Company details
- Address details
- Officer/owner info
- State-specific details
After you've entered the information, review all the info carefully on the “Review Information” page. Mistakes can delay things.
- Heads up: State agencies might add fees or take longer than expected. Middesk will notify you if that happens.
If everything looks good, click Continue to Gusto.
Before you submit the order, review the cost breakdown and total amount again.
- Middesk will start to process your order after you submit it. They'll email you with order updates, and we'll add the cost to your next monthly bill.
- At this time, we cannot support order cancellations or refunds.
Click Submit.
- Heads up: After we submit your registration, you may need to answer a verification call from the agency to confirm that the registration request is legitimate. If you do not complete this within 3–5 business days, the order will be canceled and refunded.

What to expect next

When Middesk gets your tax account information back after registering, they'll enter it in Gusto for you.
Each state and agency takes a different amount of time to process a registration. To estimate when your state tax account info will be available, check the Post Submission Questions in Middesk's help article.

Important: You may need to give Gusto access

Some states require you to give Gusto third-party access (TPA) or a Power of Attorney (POA) to your tax accounts. Middesk does not do this for you.

Check the state registration articles to see if TPA or POA is needed. If there's no “Authorize Gusto” or TPA section, it's not needed right now.
If TPA or POA is needed, and you need access to your online account:
- If Middesk created the account (to register your business), you can find the login info after registration is complete in Gusto under Taxes & compliance > Tax setup.
- If Middesk did not create the account, and the state still needs TPA, you must create the portal account yourself.

Need to make a change?

If you already submitted your info but need to fix something, email [email protected] to update it.

Check the status of your order

When your order is complete, you’ll get emails from Gusto and Middesk. They’ll detail the next steps, which include:

Reviewing registration details
Any other state-specific instructions

Before your order is done, you can check the order status in your Gusto account:

Sign in to Gusto.
Go to Taxes & Compliance select Tax setup.
Find the state headline, and just below it, view the order status. It could be:
- Tax registration in progress (not yet submitted to the state)
- We need more information
- The state is working on your order
- You have existing tax accounts
  - If we find you've already registered for taxes in the state, Middesk will cancel and refund the registration order. Work with the agency to find your tax account details and enter them in Gusto.
- Your registration has been completed
- Your order is on hold
- We could not complete your tax registration.
If there is action required, check your email for next steps.

How Gusto handles tax registration mail

For most states where tax registration info is sent by physical mail, here's what to expect:

Middesk receives agency mail during registration to collect tax details. Your tax account info is later sent to Gusto.
Gusto provides a digital mailbox where agency mail that was sent during registration can be viewed.
After registration is complete, the agency updates its mailing address to your business address for future mail.
- Important: In some cases, you'll need to take action to help update the address. We'll send an email or Home page to-do if any action is needed from you.

States—supported by Middesk—that send physical registration mail

Arizona, Delaware, Kansas, Kentucky, Maryland, Michigan, Montana, New Hampshire, Oklahoma, Washington, and West Virginia.

How to view your digital mailbox or tax account credentials

Sign in to your admin profile in Gusto.
Go to Taxes & Compliance and click Tax Setup.
Find the state where a registration order has been completed, and click Visit Middesk.
- This option will only appear for states that send physical mail.
Here's what you can see in the digital mailbox:
- Communications: View mail and other agency communication sent during registration or right after.
- Accounts: View tax account credentials by agency.

FAQs

Q: Can I run payroll before my registration is done?

A: Yes. You may be asked to enter tax rates and tax deposit frequencies, but you can use temporary info.

Important reminders

We cannot submit tax payments or filings until all tax account numbers are added in Gusto.
If you run payroll before finishing registration, you might get notices about late tax payments or filings. Any penalties are your responsibility.
If you’re only registering for unemployment tax and do not have your rate yet, use the new employer rate for your state in Gusto until you get the correct one. Update the rate once you get it.

Q: I need to change some of the registration information that was submitted. What do I do?

A: Email Middesk at [email protected].

Q: Can I use Gusto to register in a new state without a Federal Employer Identification Number (FEIN)? What if my business is merging or being acquired?

A: No, you need a FEIN in Gusto to get registration help for state taxes.

If your business is merging or being acquired, Middesk cannot help with registration. You'll need to work with a tax advisor and state agencies directly.

Q: What if I'm not liable for unemployment tax yet?

A: If you want Middesk to start setting up an unemployment account number before you're liable, you can:

Use today’s date as the first date the employee(s) in the new state will be paid.
Enter the start date of the quarter you expect to meet the liability threshold.
- Check the state’s liability info in the Register on your own section (go to the SUI dropdown). If there’s no info, contact the state agency directly.

Q: What do I do if the tax agency contacts me after the registration is submitted?

A: Respond to them. For some agencies, you may need to answer a verification call to confirm that the registration request is legitimate. If you do not complete this within 3–5 business days, the order will be canceled and refunded.

Q: Can Middesk help if the responsible party is international without an ITIN or SSN?

A: No. Middesk cannot help in this scenario, you'll need to register on your own.

Q: Why am I unable to enter 0% ownership for the responsible party or add a commercial owner?

A: Some states have a 1% minimum for the responsible party's ownership percentage. These states include ID, KS, MN, OH, SC, DC, DE, MD, NJ, NY, and RI.

You’ll need to place registration orders directly with Middesk outside of Gusto or register directly with the agency.

Some states require an individual owner to be listed. If you’re a non-profit or unsure, contact Middesk for help at [email protected].

Q: When will my tax account information be available?

A: Each state and agency takes a different amount of time to process a registration. To estimate when your state tax account info will be available, check the Post Submission Questions in Middesk's help article.

Q: Where can I find my tax information?

A: You can find your tax info in several places:

In Gusto: Click the Taxes & compliance section and select Tax setup, then scroll to state tax setup.
In your state’s online portal: Find your account details there.
- You may need to create accounts on your own, but Middesk does this when it's required to register. Go to the Post Submission Questions in the Middesk help article to see which agencies they'll create credentials for.
  - If Middesk has to create an agency account to register your business, you can find the agency portal login details on the Taxes & compliance > Tax setup page in Gusto once registration is complete.
By mail: Some agencies send tax info by mail. If that happens, Middesk will let you know, and you'll need to enter this info in Gusto.

Gusto’s state tax registration service does not contain tax, legal, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer, HR expert, or accountant for specific guidance.

Q: Does Middesk help with giving Gusto third-party access (TPA) or Power of Attorney (POA) for tax payments?

A: Some state agencies need Gusto to have TPA or POA access to file and pay your taxes. Usually, Middesk does not set this up, so you’ll have to do it yourself after registration.

Check the state registration articles to see if TPA or POA is needed and how to set it up. If there's no “Authorize Gusto” section, then TPA is not needed right now.

If setting up TPA or POA requires online agency portal access:

If Middesk has to create an agency account to register your business, you can find the agency portal login details on the Taxes & compliance > Tax setup page in Gusto once registration is complete.
If Middesk does not need to create an account, but the agency requires TPA to be set up through their portal, you need to set up the agency portal accounts on your own.

Q: Does Middesk help close state tax accounts?

A: No, you'll need to close the tax account yourself.

Q: Can I cancel my Middesk order?

A: At this time, we do not support order cancellations or refunds.

Q: What is Middesk's phone number?

A: To get support from Middesk, you must email them at [email protected]. They can help with registration-specific questions, or changing info that's already been submitted. For all other questions, you can message Gusto.

Click the dropdowns below to learn how to register with state and local agencies and how to give Gusto the third-party access (TPA) we may need to help resolve tax issues.

Pennsylvania tax agencies

Pennsylvania Department of Revenue (DOR) – withholding tax
Pennsylvania Unemployment Contribution (UC) Fund – unemployment tax
Various local agencies – local taxes

Withholding account (income tax) and unemployment account registration

Register for both withholding tax and unemployment

It could take a few weeks to get your account numbers and company-specific unemployment rate—keep this timeframe in mind when planning your first payroll for this state.

Head to the Pennsylvania myPATH website.
Scroll to the “Registration” headline and click Pennsylvania Online Business Tax Registration.
- If you've filed any taxes with the Pennsylvania Department of Revenue before, including Personal Income Tax Returns, you may already be a customer in PATH. If so, you must use the logged in version of the Online Business Tax Registration. Head to the homepage and select the Sign Up link to create a myPATH account.
Click Business Tax Registration.
Read all the information on the page, before clicking Next.
Complete all remaining prompts.

If you're not immediately issued a company-specific unemployment tax rate, you can enter the new employer rate for Pennsylvania in Gusto in the meantime—update the rate once you receive it.

Don't forget to give Gusto the third-party access (TPA) we may need to help resolve tax issues.

Enter the tax account information in Gusto

Once a valid Pennsylvania work address has been added in Gusto for one or more employee(s), you can add your tax account information:

Click the Taxes & compliance section and select Tax setup.
Scroll to the "Pennsylvania Tax Setup" headline and select Manage taxes.
Enter your “Withholding Account ID”, "Employer Account ID Number" (for unemployment tax), and unemployment rate.
- Reminder: Your eight-digit withholding account number is different from your employer identification number (EIN) or Revenue ID Number.
- Learn how to update your rate.
- If you edit a tax account number after payments or filings have already been made, there may be tax implications. Learn how to pull reports in Gusto that can help you correct any historical tax issues related to tax account number updates.

Local tax registration

Parkland school district local services tax (LST)

If you live in the Parkland School District and will be paying a local services tax (LST) to this agency, you'll need to register your business. Townships in this county include North and South Whitehall and Upper Macungie.

The Parkland School District has appointed Berkheimer Tax Innovations as the Local Services Tax Administrator.

Register your business with Berkheimer Tax Innovations.
Enter your account number in Gusto—it's typically a seven-digit number.
- If you do not know your account number, email Berkheimer Tax Innovations, or call them at (610) 599-3140.

Gusto automatically withholds LST taxes on regular payrolls. The amount withheld is prorated based on the company’s pay schedule. LST taxes will not be withheld on off-cycle, bonus, or non-Gusto payrolls.

City of Philadelphia Tax

If you do not yet have a tax account number or will be paying an employee in Philadelphia for the first time, you'll need to register with the City of Philadelphia tax center online. You should receive your number instantly after registering online.

Enter the 10-digit tax account number in the Taxes & compliance section of Gusto—do not enter the 11-digit number that starts with '00-#########.'

City of Pittsburgh Tax

You do not yet have a Pittsburgh City ID, and;
You'll be paying an employee who'll be working in Pittsburgh, or who is a resident of Pittsburgh, for the first time.

How to register

If you have questions about registration, contact the agency at (412) 255-2543.

Learn how to register on the city's website.
In "Section 4: City Tax Liabilities" of the Business Registration Form, check the boxes for:
- Payroll Expense Tax and;
- Local Services Tax

The Department of Finance will send you the following 5-10 business days after registering:

Verification letter and;
City ID

Once you receive your Pittsburgh City ID, enter it in the Taxes & Compliance section of Gusto. If you need to confirm the City ID, contact the agency at (412) 255-2525—from the phone tree, select 2, and then 2 again.

Earned Income Tax with Jordan Tax Service

You also need to register for the Earned Income Tax with Jordan Tax Service.

Once you get your account number (also referred to as your "EIN" or "Registration ID"), you'll need to enter it in the Taxes & compliance section of Gusto.

City of Scranton Payroll Preparation Tax (PPT)

Every person or business having an office, factory, workshop, branch, warehouse, or other place of business—including banks, schools, hospitals, nonprofits, and trade associations—who work in all, or part of the city, and has not previously registered, is required to register to pay this tax.

Scranton Payroll Preparation Tax details:

The withholding rate is for businesses who pay workers to perform services in the City of Scranton.
Payroll expense includes all compensation earned by an employee or a self-employed individual.
- Compensation is defined as salaries, wages, commissions, bonuses, net earnings and incentive payments based on profit or otherwise, along with fees, tips and any other form of payment for services rendered, and whether in cash or in property.
For questions, check out Scranton’s FAQs and answers.

Gusto withholds the tax and pays the contributions on behalf of your company. Here’s what to do next:

Step one: Register for the Scranton Payroll Preparation Tax (PPT) with the Berkheimer tax agency (HAB)

If you have questions, contact the agency directly at (610) 599-3140.

Step two: Confirm you’ve registered for the Payroll Preparation Tax (HAB-PPT) in Gusto

If you already paid this tax outside of Gusto, contact us from the Help section of your account.

Otherwise, confirm you’ve registered for the “HAB-PPT” in Gusto by following the steps below:

Click the Taxes & compliance section and select Tax setup.
Scroll to the “Pennsylvania Tax Setup” headline and select Manage taxes.
Next to “Registered with HAB-PPT?” click edit.
Select Yes, I have already registered.
- You won’t need to enter a unique HAB-PPT number because we’ll use your Federal Employer Identification Number (FEIN) to pay the tax.
- To confirm you’ve registered for the HAB-PPT tax, or to get additional registration instructions, contact the Berkheimer Tax Administrator at (610) 599-3140.
Click Save.

Should you receive any tax notices about the Scranton Payroll Preparation Tax, report and upload the tax notice in Gusto.

Other Pennsylvania local taxes

To determine where you need to pay taxes and register as a new employer:

Head to this website.
Enter the home and work address of an employee.
Click View Information.

The website will return the relevant/applicable taxes and tax collectors in yellow boxes. This includes the phone number, fax number and collector website so that you can contact them about registering with their office.

Enter the tax account information in Gusto

Once a valid local address has been added in Gusto for one or more employee(s), you can add your tax account information:

Click the Taxes & compliance section and select Tax setup.
Scroll to the "Pennsylvania Tax Setup" headline and select Manage taxes.
Enter the applicable account number.

Find account numbers and rate info (if you're already registered)

If you've already registered in the state, you'll need to enter your tax account details in Gusto to pay employees.

You'll need to be registered with one or more of the below agencies in order for Gusto to file and pay taxes on your behalf:

Pennsylvania Department of Revenue (DOR) - withholding tax
Pennsylvania Unemployment Contribution (UC) Fund - unemployment tax
Various local agencies - local taxes

If you still need to register, click the applicable dropdown above in this article.

Find your withholding tax account number—licensing number

If your business has run payroll in PA previously, you can find your eight-digit "Withholding Account ID" (also known as the Licensing Number) by:

Logging into your MyPATH account—you can find your 8-digit “Withholding ID” in your Employer Withholding Tax (W-3), or Employer Annual Reconciliation (REV-1667) accounts, or;
Reviewing the coupons or Employer Quarterly Reconciliation that you received from the PA Department of Revenue, or;
Calling the agency at (717) 787-1064.

Reminder: Your eight-digit withholding account number is different from your employer identification number (EIN) or Revenue ID Number.

Don't forget to give Gusto the third-party access (TPA) we may need to help resolve tax issues.

Find your unemployment account number (Employer Account ID), unemployment rate, and city of Philadelphia account number

Unemployment account number (Employer Account ID) and rate

If your business has run payroll in PA previously, you can find your UC Employer Account ID number and tax rate by:

Logging into the PA UC Management system.
- Your Employer Account ID number will be at the top of the screen.
- To get your tax rate, click Contribution Rates in the left-menu, and then select Rate History.
Reviewing the Contribution Rate Notice (Form UC-657), Notice of PA UC Responsibilities (UC-851), or Report for Unemployment Contribution (Form UC-2) received from the PA Department of Labor and Industry, or;
Calling the agency at (866) 403-6163.

Note: If your Employer Account ID number is longer than seven digits, only enter the first seven digits.

If you do not have your assigned rate yet, enter the new employer rate for Pennsylvania in Gusto in the meantime—update the rate once you receive it.

Don't forget to give Gusto the third-party access (TPA) we may need to help resolve tax issues.

City of Philadelphia account number

You can look up your account number by signing in to the Philadelphia Tax Center.

Enter the 10-digit Philadelphia tax account number in Gusto, not the 11-digit number that starts with '00-#########.'

Enter the tax account information in Gusto

Once a valid Pennsylvania work address has been added in Gusto for one or more employee(s), you can add your tax account information:

Click the Taxes & compliance section and select Tax setup.
Scroll to the “Pennsylvania Tax Setup” headline and select Manage taxes.
Enter your “Withholding Account ID”, "Employer Account ID Number" (for unemployment tax), and unemployment rate.
- Your eight-digit withholding account number is different from your employer identification number (EIN) or Revenue ID Number.
- If your Employer Account ID number (for unemployment tax) is longer than seven digits, only enter the first seven digits.
- Learn how to update your rate.
- If you edit a tax account number after payments or filings have already been made, there may be tax implications. Learn how to pull reports in Gusto that can help you correct any historical tax issues related to tax account number updates.

How to authorize Gusto with Pennsylvania agencies

Third party authorization is recommended for the below agencies:

Pennsylvania Department of Revenue (DOR) TPA access is needed for amended returns and resolving tax issues.
- Withholding tax
Pennsylvania UC Fund TPA access is needed for resolving tax issues.
- Unemployment tax

Authorizing Gusto with the PA Department of Revenue (withholding tax)

This agency needs Gusto to have access to your online myPATH account to help fix tax problems and file amendments.

We’ll try to get access using the business info we already have.

If we cannot:

The agency will mail a myPATH Access Letter to your business address.
When you get it, go to the Help section of your Gusto account and send us the “Letter ID.”

If your tax account has a Primary Administrator

If someone is listed as the “Primary Administrator” of the tax account, they may need to approve Gusto’s access. They’ll get an email with the steps (also outlined below).

Here’s what they’ll need to do:

Sign in to myPATH.
In the top-right corner, find and click Manage My Profile.
Click the More... tab.
Find the "Access Management" panel, and click Manage Third Party Access.
- This will only show if Gusto is already added as a third-party. You can add third-parties through "Manage My Access".
For the "access level", choose File Returns & Make Payments.
Make sure Gusto has access to:
- Employer Withholding Tax (W-3): Allow Gusto to file returns/make payments.
- Employer Annual Reconciliation (REV-1667): Allow Gusto to file-return.
Click Grant to give access.
Click Submit.

If you have questions, call the e-Business Tax Unit at (717) 787-1064.

Authorizing Gusto with the PA UC Fund (unemployment tax)

This is recommended so we can access your account to discuss account details and help resolve tax issues.

It only takes a few minutes and is 100% online—if you run into any issues, follow this agency tutorial.

Visit the PA UC Management system and login using the green box on the right side of the screen.
- Reminder: Pennsylvania has two separate portals, the UC system, and UC Management system. To authorize Gusto, you'll need to use the UC Management system, the other portal is for managing employee benefit information, and you do not need to give Gusto access to that.
From the left-menu, select Employer Profile.
Select Manage Representatives.
- This page should display TPA/representative information.
Select Add New Representative to add Gusto:
Enter Gusto's identifier: 2272162774
Add today's date as the effective date.
Assign the following Service Function: File Quarterly Reports & Adjustments.
Click Submit, and then click Ok.
- You'll be taken to the “Manage Representative” page.
Repeat the assigning of a service function two more times, giving Gusto the additional service functions of:
- Contributions Rate Information
- Delinquency Account Discrepancies
Once all three service functions have been assigned, Gusto will handle the remaining steps needed to finalize the access request.

If you have questions or need assistance, call the UC Employer Contact Center at (866) 403-6163 between the hours of 5am and 1:30pm PT. You can also try this agency guide for help troubleshooting issues.

Forms we file in Pennsylvania

PA W-3(Employer Quarterly Return of Withholding Tax)
UC-2 (Employer's Unemployment Insurance Tax Report)
Form Detail UC-2 (Employer's Report for Unemployment Compensation)
REV-1667 AS(W-2 Transmittal)
State W2 (Wage and Tax Statement)
New Hire Report
Various local returns

You can view forms in Taxes & Compliance > Tax documents. Switch between the tabs to find federal, state, W-2s, and 1099s.

Forms with an asterisk (*) may not show in your Gusto account—these are usually payment vouchers or coupons filed electronically.

To see what Gusto has paid on your behalf, run the Agency Payments report.

Agency website(s) and contact info

Pennsylvania Department of Revenue
- Call (717) 787-1064, or schedule a call
- Additional contact information.
Pennsylvania Department of Labor and Industry
- Call (866) 403-6163

Dependent Care FSA tax credits

On February 1st, 2024, the Pennsylvania Department of Revenue announced a new tax credit for Dependent Care Flexible Spending Account (DCFSA) contributions. It’s retroactively effective Jan 1, 2023.

Here’s how Pennsylvania taxes are affected:

Employer contributions to DCFSA will no longer increase taxable wages for state income tax (SIT), local services tax (LST), and local earned income tax (EIT)
Employee contributions to DCFSA will now decrease taxable wages for SIT, LST, and EIT

The maximum tax credit is $154.

FAQs

Q: How much will my PA liability be lowered by?

A: The IRS sets the yearly DCFSA maximum contribution (employer/employee) amount listed in box 10 as $5,000. If $5,000 is the total listed in box 10 of Form W-2, this adjustment in wages should lower your PA tax liability by a maximum of $154. Of course, individual contributions can differ, so this amount may be lower.

Q: What about my 2024 DCFSA contributions?

A: For 2024, any contributions made to a DCFSA will automatically be adjusted toward taxable wages in accordance with the new regulations.

Q: Why are we learning about this so late?

A: The Pennsylvania Department of Revenue executed this change on 12/14/23, and released information to the public on 2/1/24, after the 1/31/24 deadline for issuing the federal Form W-4. There were several unanswered questions in the 2/1/24 release that needed to be addressed before programming changes were made.

Q: I've already filed my taxes. What should I do?

A: The maximum tax credit for DCFSA is $154. This amount can be lower based on differences in employer and employee contribution amounts. If you need to change your initial personal filings, consult your tax professional.

Learn more on the Pennsylvania Department of Revenue website.

Template for the employer notice

Below is a template employers can provide to their employees who are impacted by the change in dependent care benefit. This notice is used only if an employee has decided to amend their personal tax return.

To: Employees

Re: 2023 Dependent Care Flexible Spending Account (DCFSA)

We've been notified by our payroll service provider, Gusto, that your Dependent Care Flexible Spending Account (DCFSA) benefit is no longer subject to Pennsylvania personal withholding tax for both employer and/or employee contributions. The Pennsylvania Department of Revenue enacted this change on 12/14/23, and released information publicly on 2/1/24 after Form W-2s were finalized. This change is effective retroactively to 1/1/23.

As a result, if you choose to make an adjustment to your personal tax return, this communication serves as a confirmation, verifying why the amount on the Form W-2 (box 16) does not match the adjustment amount you report on line 1a of your PA personal tax return.

To take advantage of the tax credit up to a maximum of $154, you'll need to modify your PA personal tax return line 1a amount. Line 1a differs from what's reported on your Form W-2 (box 16) because of a manual adjustment/calculation in PA wages. The wage displayed on line 1a of your personal return must be adjusted by taking the amount on Form W-2 (box 16) and reducing it by the amount listed on Form W-2 (box 10).

Click here for the agency’s guidance recommending the adjustment amount.

Please keep a copy of this communication for your records with your 2023 PA tax return if you're filing your returns electronically.

Sincerely,

The Gusto Team

On behalf of Employer

Learn how to close or reopen tax accounts here.