A Local Services Tax must be paid by any person employed within the boundaries of a municipality that imposes a Local Services Tax. Employers must deduct the Local Services Tax from employees’ pay and remit it to the municipality. The tax is imposed on all persons who are paid wages or compensation by the employer in the township and must be withheld from their earnings unless they file an exemption certificate. Refunds are available to persons who earn less than $12,000 per year and individuals in the US Military (Active or Reserve), Clergy, or who have a service-connected disability that is a blindness, quadriplegic, paraplegic, or total one hundred percent permanent disability.
The Local Services Tax must be withheld from employees’ pay on a quarterly basis based on the number of payroll periods that the employer establishes for the calendar year. It may not be collected in a lump sum, and employers must remit it quarterly along with a quarterly report.
Local Services Tax Deduction
The LST is a non-deductible tax and cannot be included in your federal income taxes. However, the amount of the tax you pay can be included as a cost basis in your property if it is an improvement such as an additional bedroom, kitchen remodel, or new garage. For more information on this, see Publication 551, Basis of Assets. This publication is available on the IRS website.
If an individual works for more than one municipality, each of them must withhold the Local Services Tax. The employer must notify the employee that he or she is subject to multiple withholdings and provide them with an exemption form. In the event employment is severed in a particular calendar year, the individual is liable for any outstanding balance of the Local Services Tax owed, and the political subdivision levying the tax has a right to pursue collection under this act.
The act requires political subdivisions to adopt regulations to ensure that a person’s claim for an exemption is processed quickly and fairly. A refund must be issued within 75 days of the date a claim is filed or January 30 of the year after the year the tax was paid, whichever occurs later. Municipalities, but not school districts, are required to use 25% of Local Services Tax revenues for emergency services.