FAQ: Local Services Tax

(posted 12-Dec-2007, revised 4-Mar-2010)

Overview
The Local Services Tax (LST) has been around for a long time. However it was previously known as the Emergency Municipal Services Tax (EMST). And prior to that, it was known as the Occupational Privilege Tax (OPT). On January 1, 2008, the tax became officially know as the Local Services Tax.

Q: Why was the name changed?

To alleviate confusion on how the tax is to be used by the municipalities. Some individuals assumed the tax was used to fund emergency medical service providers. As a result, some individuals ceased their voluntary donations to their emergency medical service providers.

Q: So how is the tax to be used by municipalities and school districts?

A minimum of 25% of the tax revenues are to be used for emergency services, such as police, fire, and ambulance protection. Municipalities, but not school districts, are also permitted to use LST to reduce property taxes. Road construction and maintenance is also an acceptable use of LST tax revenues.

Q: So does everyone have to pay the tax?

Messiah College is located in Upper Allen Township, Cumberland County. Upper Allen Township currently has an EMS tax rate of $52.00. Therefore, unless an employee applies for an exemption of this tax, the employee will have $52.00 withheld.

Employees at our Philadelphia Campus will continue to be exempt from this tax, as local taxes are all compiled into the Philadelphia Resident and Philadelphia Non-Resident Tax for those employees.

Q: How is the tax collected from paychecks?

Since Upper Allen Township collects $52.00/year, employers in this municipality must collect the $52.00 in per-pay installments based on the maximum number of scheduled payroll periods for a given employee group in the calendar year (regardless of the number of pay periods actually worked during the year). For example, if an employee group is paid weekly by the employer, the tax must be withheld weekly. The new regulations do not allow a $52.00/year lump withholding or a $13.00/pay withholding over an employee’s first four pays of the calendar year.

When calculating an employee’s LST per-pay withholding, the Payroll Office will review the number of scheduled pays for the employee group (e.g., 24 pays for semi-monthly; 26 pays for bi-weekly; 16 pays for students). The withholding rate will be based on the maximum scheduled number of pays for a full year. The calculation is $52.00 / [number of pays] and is rounded down to the nearest penny.

  • Semi-monthly employees: $52.00 / 24 pays = $2.17/pay
    • Includes adjunct faculty who work less than 24 pays
  • Bi-weekly, 26-pay employees: $52.00 / 26 pays = $2.00/pay
    • Includes bi-weekly employees working less than 26 pays as the pro-rata amount must still be calculated on a bi-weekly pay schedule based on 26 pays
    • Includes temporary employees and sports camp employees as well, regardless of number of pays actually worked
  • Student employees: $52.00 / 16 pays = $3.25/pay

Q: What if I have multiple jobs in one or more jurisdictions? Do I pay $52.00 to each?

No, the $52.00 withholding is limited to an annual limit of $52.00 regardless of the number of employers or political subdivisions in which the employee is employed.

Employees with concurrent employment in one or more jurisdictions are should submit an exemption certificate to indicate the principal employer. Exemption certificate forms can be found on the Payroll Office website or can be obtained in the Payroll Office.

Q: What if I am newly hired at Messiah during the tax year?

Messiah is responsible for withholding LST tax from the point of a new employee’s hire at the same withholding amount/pay as full-calendar-year employees. For example, a bi-weekly employee who is hired in July would have $2/pay withheld from each pay for the remainder of the calendar year, just as a continuing employee would. The law requires your new employer to complete any remaining withholding. It is the employee’s responsibility to notify their new employer if all, or part, of the LST tax was already withheld by the previous employer.

Q: What if I resign or am terminated from Messiah during the tax year?

The tax law no longer requires Messiah to have withheld an employee’s full $52.00 annual deduction by time of termination. Instead, employers are only required to withhold LST tax for those payroll periods in which the taxpayer is employed. The law requires subsequent employers to complete any remaining withholding. It is the employee’s responsibility to notify subsequent employers if all, or part, of the LST tax was already withheld.

Q: Can I be exempted from the Local Services Tax?

Yes, an employee can be exempted in a number of ways. An employee can be exempted if: (1) they are employed by multiple employers (only the “primary” employer must withhold the tax); (2) an employee will earn less than the $12,000 annual wage limit in Upper Allen Township (known as the mandatory low-income exemption); (3) the employee is on active military duty; or (4) the employee has a military disability exemption.

For each of these exemptions, the employee is required to complete the Local Services Tax – Exemption Certificate form which is available in the Payroll Office, on the Payroll Office website, and also at the Cumberland County Tax Bureau's website. A copy of the employee’s last pay stubs or W-2 forms for the year prior to the calendar year for which the employee is requesting an exemption must be attached to the exemption certificate.

In addition to filing the form with Messiah College, you are also required to submit a completed copy of the form, with appropriate attachments, to the Cumberland County Tax Bureau, whose address is on the form.

The exemption will be in effect for the remainder of the calendar year (i.e., from the point of submission for the exemption). Any tax already paid during the calendar year will need to be processed as a refund through the Cumberland County Tax Bureau.

Q: Can my exemption be revoked or terminated?

Yes, an exemption can be revoked for a given tax year in any of three ways: (1) Upper Allen Township instructs Messiah to withhold the tax; (2) the employee notifies the Payroll Office that they are no longer eligible for the exemption; or (3) the employer pays the employee more than $12,000 in wages during the calendar year.

Q: What happens if I exceed the $12,000 earnings limit?

The Payroll Office will be monitoring employee earnings when an exemption is requested. Should an employee exceed the $12,000 earnings limit, Messiah will withhold a “catch-up” lump sum for the period originally covered by the exemption and will then begin withholding at the standard per-pay withholding rate.

Q: What if I overpay my Local Services Tax? Can I get a refund?

Tax refunds are requested via the Local Services Tax – Refund Application form that is available on the Payroll Office website and also online at the Cumberland County Tax Bureau website.

Q: What if I underpay my Local Services Tax? Will I get a bill?

Yes, from the local tax municipality. Employers are required to withhold the Local Services Tax based on the maximum number of pay periods available for a given employee (e.g., temporary employees can work 26 bi-weekly pays). If an employee does not work the maximum number of pay periods, and the employee does not have the remainder of the tax withheld by another employer, the municipality will send the employee a bill requesting payment for the underwithheld amount.

Q: Do I need to re-apply for tax exemption annually?

Yes, the exemption is good only for one year. Exemption requests for subsequent years must be submitted following the exemption process described previously.