Act 32 Panel of Experts

1. 1 Pennsylvania Statewide Payroll Conference Act 32 Panel of Experts This session is a case study showing the evolution of Act 32, and a look at how software vendors prepared for the implementation of Act 32 and the Tax Collectors who are here to answer your questions.

2. Pennsylvania Statewide Payroll Conference Act 32 Panel of Experts Alena Jakubowski, Senior Manager Tax Research Mary Sharp, CPP Payroll Manager Terry Hackman, Executive Director Rose Harr, VP of Client Relations Jim Hunt, Director of Sales and Client Services

3. Who we are… 3 Pennsylvania Statewide Payroll Conference Main Line Health has four distinguished community based acute care hospitals; a renowned specialty hospital for rehabilitation; a staff of more than 1,700 physicians and surgeons; and a network of outpatient, home care and long-term care programs. MLH has over 10,000+ employees – all located in PA! Main Line Health uses PeopleSoft for Human Resources and Payroll and ADP for tax filing.

4. Who we are… 4 Pennsylvania Statewide Payroll Conference For over 30 years, Vertex has been the market leader for tax technology, offering software and services to help corporate tax improve efficiency, increase accuracy, and make a real contribution to the bottom line. Vertex solutions for indirect and direct tax streamline tax calculation and compliance, provide unparalleled audit support, and improve tax process and planning activities. Vertex provides tax data, technology, services, and expertise to help you manage every stage of the corporate tax lifecycle --  from tax accounting to calculation, compliance, audit support, and planning.

5. Pennsylvania Statewide Payroll Conference It all started many moons ago… PA Local Tax Collection system had 560 collectors for 2,500 + localities. The PA Department of Community and Economic Development saw a need for a change and began a project to re-design the system…

6. 6 Pennsylvania Statewide Payroll Conference Then late one night…a notice arrives • July 2, 2008 PA Legislature enacted an amendment of the Local Tax Enabling Act, ACT 511 of 1965 called ACT 32. • With a lofty goal of consolidating and simplifying the collection of Local Earned Income taxes on a countywide basis. • Mandatory compliance by January 1, 2012! • Employers are required to withhold local earned income tax from employees based on where they WORK or LIVE whichever rate is higher! • Countywide Tax Collection Districts are formed.

7. Pennsylvania Statewide Payroll Conference A little summary of ACT 32 from our good friends at ADP… Pennsylvania Earned Income Tax • The Earned Income Taxes (EIT) in Pennsylvania are local income taxes imposed by the employee’s resident municipality. • In 2012, new legislation called Act 32 provides for a restructuring of the Earned Income Tax Collection System for Pennsylvania local governments and school districts. Legislation requires all taxing authorities that implement an Earned Income Tax to comply with all applicable regulations for January 1, 2012. Tax Collection Districts (TCD) may opt for early implementation by January 1, 2011. • This new collection system will greatly reduce the number of tax collectors. Employers will be required to withhold from all employees working in a collection district and send the deposit and filing to that central collector who will then be responsible for forwarding the tax to the employees’ respective resident jurisdictions. Tax Rates • If the tax rate for the employee’s resident municipality is different than the rate for their worked-in municipality, employers will be required to withhold the higher of the two rates. Tax Collection Districts (TCDs) • Under Act 32, the current earned income tax collection process will be restructured to create county-wide Tax Collection Districts. These new districts will have boundaries that are congruent geographically with current county lines, unless there is a school district that overlaps county boundaries. If a school district crosses a county line, the school district and its component municipalities will be kept whole and be included in the county where the affected municipalities have the greatest population. • There will no longer be the possibility of different collectors for a school district and municipality (previously referred to as a split collector) and there will no longer be the possibility of a resident-only collector or courtesy withholding. • Act 32 provides for one EIT tax office (collector) for each county, other than Philadelphia. It will result in a reduction of local EIT collectors from 560 to 21.

8. Pennsylvania Statewide Payroll Conference Then the nightmare begins… Keystone Collections Group notifies MLH that they are the appointed Tax Collector for Chester County AND was approved to enact the EARLIER date for ACT 32 on Jan 1, 2011! • Now the panic and late nights start…

9. Pennsylvania Statewide Payroll Conference All is not lost….No Penalties! Jan. 14, 2011 Chester County Employers Get Penalty Waiver Associated with New Withholding Requirements • The Chester County Tax Collection committee voted for early implementation of the tax withholding provision of Act 32 of 2008, legislation that consolidates collection of local earned income tax. This provision of the legislation requires employers to withhold earned income tax at the higher rate of either the non-resident rate in the employer’s jurisdiction or the resident rate in the employee’s residence – a provision that was set to begin Jan. 1, 2012. • Act 32 allows a Tax Collection Committee to elect early implementation of the tax withholding provisions as of Jan. 1, 2011, and allows each individual taxing jurisdiction to select whether they will use the new Tax Collection Committee appointed tax collector for collection of the 2011 taxes. Chester County opted for early implementation. Starting Jan. 1, 2011, all employers located in Chester County have been required to adopt the new mandatory withholding rules.  • On Tuesday, Jan. 11, the Chester County Tax Collection Committee voted to waive all penalties and interest for the first two quarters of 2011 to allow employers time to comply with the regulations. Other counties adopting early compliance include Lebanon and Wyoming counties. For more details, visit PICPA’s website.

10. 10 Pennsylvania Statewide Payroll Conference We have a Plan of Attack! • Develop a process for the Resident Form and get it to employees asap. • Have one Payroll Analyst to figure out which rate is higher and add the PSD code for residence on the form. • Configure the payroll system for withholding and reporting requirements. • Start keying over 3,000 forms into the payroll system for the 3rd QTR of 2011! • At least there are no penalties or interest charges for the two quarters~

11. 11 Pennsylvania Statewide Payroll Conference The nightmare continues … January 1, 2012 deadline approaches • With Keystone enacting ACT 32 early, it gave us a chance to a start early on how we were going to handle 10,000 employees for ACT 32. We had some ‘lessons learned’ and came up with the following action plan. • Develop a ‘Certificate of Residency’ form online in Self Service • Configured and update the Payroll system to handle ACT 32 requirements. • Education and Training for the Payroll Staff • Communicate Plan for employees.

12. 12 Pennsylvania Statewide Payroll Conference WE have awaken to a new day! • It’s January 1, 2012 – ACT 32 is HERE! • This is no nightmare – this is REAL! • after all, we live and work in PA! • We have awaken from the Nightmare ACT 32 and Survived!!

13. 13 Pennsylvania Statewide Payroll Conference • Questions & Discussion • Combine filing for Counties – success stories? • Combine filing for Local Service Tax & Earned Income Taxes • Standardize file formats to Collectors • Pay Online to Collectors • Search results on the DCED website • Tax Withholding issues: • PO Box and/or Rural Route Addresses • Multiple Worksites in the same quarter • Temporary Presence

14. Thank You 14 Pennsylvania Statewide Payroll Conference Mary Sharp, CPP Payroll Manager sharpm@mlhs.org Alena Jakubowski, Senior Manager Tax Research Alena.jakubowski@vertexinc.com Terry Hackman, Executive Director terryh@lctcb.org Rose Harr, VP of Client Relations rharr@keystonecollects.com Jim Hunt, Director of Sales and Client Services jhunt@hab-inc.com