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Why was I charged interest and penalty when I filed my earned income tax on time?

Pennsylvania law establishes quarterly due dates for local earned income taxes. If local earned income tax is not remitted by each quarterly deadline, the law mandates that penalty and interest accrue on the unpaid tax.

Taxpayers whose local earned income tax is not completely withheld may avoid the imposition of penalty and interest by remitting payments in accordance with one of two available “safe harbors”: (1) They may pay at least 90% of their local earned income tax liability for the filing year by January 15th of the following tax year; or (2) they may remit four equal, quarterly estimated payments equal to 100% of the prior year’s tax liability.

Even though Pennsylvania employers (employers with employees working at a physical work location within Pennsylvania) are required by law to withhold the local earned income tax for their employees, it is still the individual taxpayer’s responsibility to make sure taxes are paid in a timely manner.  If the employer is not withholding enough from your paycheck, you can pay the difference by making quarterly estimate payments.  If you work outside of Pennsylvania, your employer may not withhold the local tax for you.  In this case, you should make quarterly estimate payments to avoid penalty and interest when filing your annual return.

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