[author: Rena Pirsos, XpertHR Legal Editor]

On October 26, 2012, Pennsylvania Governor Tom Corbett signed into law the Promoting Employment Across Pennsylvania Act (PEP; House Bill 2626) to promote the creation of new jobs and economic development within the state. PEP, which is immediately effective, allows qualified employers located in the state to retain, in the form of a rebate from the Department of Revenue (DOR), 95 percent of the personal income tax (PIT) withheld from the wages of employees hired for new jobs. The DOR keeps the remaining five percent.

Qualification Requirements

An employer is qualified if it is a for-profit corporation, partnership or other entity that enters into an agreement with the state Department of Community and Economic Development (DCED) to create at least 250 new jobs in the state within five years, with at least 100 of those jobs created in the first two years. The employer also must provide health insurance coverage to its full-time employees and pay at least 50 percent of the insurance premiums. The DCED may charge employers up to $15 per individual hired in a new job under this program.

An employer is not considered qualified if it is in the gambling industry, a religious organization, a utility, a drinking establishment, or in retail trade, educational services, public administration or food service. An employer is also not qualified if it owes unpaid taxes to the federal or state government, has filed for bankruptcy, or has publicly announced its intention to file for bankruptcy.

Retention Periods

Qualified employers are eligible to retain the PIT withheld for the new hires for one of the following periods:

  • Seven years, if the new hires are paid at a rate at least equal to 100 percent of the county average wage;
  • Eight years, if the new hires are paid at a rate at least equal to 110 percent of the county average wage;
  • Nine years, if the new hires are paid at a rate at least equal to 120 percent of the county average wage; or
  • Ten years, if the new hires are paid at a rate at least to equal 140 percent of the county average wage.

Example. The average annual wage in Pennsylvania is approximately $50,000. In order to qualify for the program an employer must pay at least 100 percent of the county average wage. The withholding tax on $50,000 at the PIT rate of 3.07 percent is $1,535. Thus, under the program, a qualified employer would be able to retain $1,458 (95 percent) and remit $77 (5 percent) to the DOR.

Additional Requirements

If an employer fails to comply with the terms of the agreement, the DOR will terminate the agreement and the employer will have to pay DOR back for the retained PIT withheld. If an employer relocates outside of the state within five years after receiving the benefits of the agreement, the employer must refund part of the retained PIT to the DOR.

Employers that enter an agreement will be required to provide a notice to each individual hired for a new job stating that the employer is receiving benefits under PEP and explaining that the employer is retaining the individual's withheld taxes. The individuals will get a credit of 100 percent of the tax withheld as if it had been remitted by the employer to the DOR.

Employers will also be required to file a quarterly report with the DOR within 30 days from the end of each calendar quarter including:

  • The employer's business name and employer identification number;
  • The effective date of the agreement;
  • The reporting period end date;
  • Information regarding each individual hired for a new job as required by the DOR;
  • Information on amounts retained or remitted; and
  • Any other information the DOR may require.

The DCED plans to conduct annual compliance reviews of employers that enter into these agreements. It also plans to report annually to the General Assembly on the effectiveness of the PEP program by March 15 for the immediately preceding year.

Application Deadline

The maximum aggregate amount of withheld PIT that may be retained under the program in a year may not exceed $5 million. Employers that wish to enter into an agreement must do by January 1, 2018.

Additional Resources

Payroll > Withholding Taxes: Pennsylvania