Frequently Asked Questions

The local Earned Income Tax (EIT) was enacted in 1965 under Act 511, the state law that gives municipalities and school districts the legal authority to levy a tax on individual gross earned income/compensation and net profits.  The tax is based on the taxpayer's place of residence (domicile) and NOT their place of employement.  The EIT is separate from teh Pennsylvania personal income tax (your state income tax).

Any resident of a municipality and/or school district who was employed druing the calendar year, and/or received taxable income during the calendar year is subject to the tax.  In most cases, your employer already deducts the EIT from your regular paycheck.  If your employer did not deduct the tax, you were self-employed, or you withdrew money from a deferred compensation plan, you are responsible for filling out the appropriate EIT forms and making payment on said amounts.

Earned income is salaries, wages, commissions, bonuses, incentive payments, fees, tips and/or other compensation for services rendered.  Net profits is income from the operation of a business, profession, or other activity, after provisions for cost and expenses have been incurred, and for which no taxes have been deducted.

As a payroll deduction, the EIT does not increase operating costs or fees to businesses.  The EIT is withheld automatiaclly by any payroll vendor.

Yes.  Employee contributions to an employer-sponsored deferred compensation plan are taxable in the year in which they are made, unlike the tax deferral offered at the federal level.  The Internal Revenue Service taxes deferred compensation when it is iwthdrawn from your account, but local taxes are imposed before the deferred amount is deposited into your retirement account.

Interest earnings, dividends, social security, capital gains, lottery winnings, unemployment, 3rd party sick pay, insurance proceeds, gifts, bequests, inheritances, and active military duty pay are not taxable.  Reserve military duty pay is taxable unless it is deemed to be active duty.

No - since social security and other entitlement programs are not income, the EIT is not applicable.

There is no known impact of an EIT on property values.  With 90% of Chester County municipalities and school districts already having an EIT, there is no evidence of any negative effects on property values.