ACT 34 of 2023 (HB 1300) was signed into law on December 14, 2023, and applies retroactively to January 1, 2023. The amounts paid or incurred by an employer of an employee for dependent care assistance provided to the employee that are excludable under 26 U.S.C. § 129 (relating to dependent care assistance programs) are now also excluded from Pennsylvania local earned income tax. Previously this income was included in Pennsylvania compensation taxable at the state and local levels.
Employees will need to use the below guidance to complete 2023 local earned income tax filings.
- If your employer issued you a corrected W-2 that accounts for the update to Pennsylvania law, use the corrected W-2 when filing your local earned income tax return.
- If you have received a W-2 that does not account for the update to Pennsylvania law pertaining to dependent care assistance programs, ask your employer to issue a corrected W-2 before you move forward with the filing of your Pennsylvania local earned income tax return. This will help you avoid any issues with the processing of your Pennsylvania local earned income tax return and any requested refund.
If your employer does not provide you with a corrected W-2, you can still file your Pennsylvania local earned income tax return by adjusting the W-2 amounts when reporting the income.
- In this case, decrease your box 16 wages by the dependent care benefits (up to $5,000), and use the adjusted amount for line 1 of the Pennsylvania local earned income tax return. (Example: If the amount reported for dependent care benefits in Box 10 of the W-2 is $5,000, and the amount reported as PA State wages in Box 16 of the $80,000, adjust the amount you report on line 1 of your local earned income tax return for that W-2 to $75,000.)
- Include the W-2 along with a written statement on company letterhead from your employer to verify why the amounts on the W-2 do not match the amount reported on line 1.
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