Local Tax Enabling Act: Rates, Exemptions, and Appeals

The Pennsylvania Local Tax Enabling Act, known as Act 511 of 1965, is the state law that lets boroughs, townships, cities, and school districts outside Philadelphia levy a defined menu of local taxes up to rate caps set by the General Assembly. If you live or work anywhere in Pennsylvania other than Philadelphia, the earned income tax on your pay stub, the flat local services tax deducted each pay period, and the transfer tax on your closing statement all trace back to this statute. It sets what can be taxed, what cannot, how much, and what to do when something looks wrong.

Where Act 511 Applies

Act 511 covers cities of the second class (Pittsburgh) and smaller, plus boroughs, towns, townships, and school districts across the Commonwealth.¹ Philadelphia is not covered. It taxes under the Sterling Act, and Scranton has separate authority for certain levies. The rate caps and exemptions in this article do not govern taxes those cities impose under their own charters.

Everywhere else, Act 511 is the ceiling. A municipality or school district cannot invent a tax the statute does not authorize, and it cannot exceed the statutory rate. Overlapping municipalities and school districts share each cap rather than each levying the full maximum, so the two must coordinate.

What Can Be Taxed and at What Rate

Section 311 sets hard caps for every tax category the Act permits. The caps apply to the combined total levied by a municipality and its overlapping school district.¹

Earned Income Tax (EIT): up to 1% of wages, salaries, commissions, and net profits from businesses, split between the municipality and the school district. This is the largest revenue producer in most jurisdictions.²
Local Services Tax (LST): a flat annual charge on anyone working in the jurisdiction, capped at $52 per person per calendar year regardless of how many jurisdictions they work in. A municipality operating under Act 47 as financially distressed may, with court approval, levy up to $156.³⁴
Realty Transfer Tax: up to 1% of the sale price for the local share. The state levies its own 1% on top, so most transactions carry a combined 2%.
Per Capita Tax: up to $10 per adult resident, regardless of income or employment.
Occupation Tax (flat rate): up to $10 per person, tied to the person’s occupation.
Mercantile Tax: 1 mill per dollar on wholesale volume and 1.5 mills per dollar on retail volume, with slightly higher millage in second-class cities.¹
Amusement Tax: up to 10% of admissions to entertainment venues, sporting events, movie theaters, ski facilities, and golf courses. The taxable base at ski areas and golf courses cannot exceed 40% of the ticket or greens fee.¹

Income and People Act 511 Cannot Reach

The earned income tax stops at active earnings. Wages, salaries, commissions, and net profits from a business are in. Investment income, dividends, interest, capital gains, Social Security benefits, unemployment compensation, and pension distributions are out and cannot be taxed locally.² A retiree living on Social Security and a pension has no EIT liability.

Manufacturing, Farming, Mining, and Timber

Act 511 prohibits municipalities from taxing goods manufactured locally, by-products of manufacturing, farm products, minerals, or timber. The ban reaches preparation, processing, transportation, loading, and storage of those products.¹ The exemption protects the business, not the workers. Employees of a manufacturer or farm still owe EIT, LST, and per capita taxes on their own earnings.

Low-Income Exemption

Any jurisdiction that levies an LST above $10 must exempt anyone whose total earned income and net profits from sources inside that jurisdiction fall below $12,000.³ Local ordinances may set the threshold higher, and some do. A taxing authority may also exempt other Act 511 taxes for individuals whose total income from all sources is below $12,000, by ordinance or resolution.¹

Military Servicemembers

Under the Servicemembers Civil Relief Act, a nonresident servicemember stationed in Pennsylvania solely on military orders does not owe state or local income tax on military pay. The statute’s definition of tax jurisdiction includes political subdivisions, so Act 511 EIT is covered directly.⁵ A servicemember’s spouse may elect to use the servicemember’s state of domicile for tax purposes, which can eliminate local Pennsylvania obligations as well.

When You Live in One Municipality and Work in Another

EIT follows both residence and workplace. The work-location municipality collects first, and your home municipality receives the difference between its rate and what you already paid at work. If both rates are 1%, the work-side withholding fully satisfies the home claim. If your home rate is lower than the work rate, you do not get a refund of the excess. You never pay more than the higher of the two rates, but you always pay at least the rate where you work.

Remote work reshuffles this because EIT and LST both depend on where you physically perform the job. Working from home instead of commuting can move your liability from your employer’s jurisdiction to your home jurisdiction. Employers have to track where remote employees actually work to withhold correctly, and hybrid workers who cross municipal lines several days a week may owe EIT in more than one place. Pennsylvania does not apply a “convenience of the employer” test at the state level, so your physical location on a given workday generally decides which jurisdiction gets the tax.

Withholding and Your Paycheck

Employers with Pennsylvania worksites must withhold EIT and LST from wages and remit them to the tax officer for the collection district. EIT withholding depends on the employee’s work location and home jurisdiction. LST is deducted in regular payroll installments through the year rather than as a single charge.

Withheld amounts appear on your W-2. Boxes 18 through 20 report local wages and local income tax withheld. If you worked in more than two local jurisdictions during the year, your employer must issue a second W-2 to capture all of them.⁶

A tax is only enforceable against employers once it appears on the Official Tax Register maintained by the Department of Community and Economic Development. Municipalities and school districts must submit new enactments, repeals, or rate changes to DCED by December 1 of the year before the change takes effect.⁷ DCED releases the register on December 15, with a mid-year update on June 15. If a jurisdiction misses the December 1 deadline, employers are not required to withhold the tax until it lands on the next register update.³

How to Appeal

Act 511 provides two separate tracks depending on what you are challenging.

Challenging a New Tax Ordinance

A new Act 511 tax ordinance cannot take effect for at least 30 days after adoption, and that window is when you file to block or modify it.¹ Petitioners go to the court of common pleas and must either muster 25 or more aggrieved taxpayers or taxpayers representing at least 25% of the total assessed real estate value in the jurisdiction. The petition requires specific objections supported by affidavits from at least five signers, and petitioners must post a $500 bond. The court schedules a hearing within 15 to 30 days. Filing does not automatically halt collection unless the court grants that relief.

Courts give deference to the local government’s choice of what to tax and at what rate, and will strike down an ordinance only when it is unlawful, excessive, or unreasonable. A court can void the ordinance in whole or in part or reduce the rate.

Disputing an Individual Assessment

If your dispute is about how much EIT you owe, whether your employer withheld the correct amount, or whether you are due a refund, the appeal goes to the tax collection district’s appeals board rather than to court. Under Act 32, each tax collection committee had to seat an appeals board of at least three members by June 2010.¹ Taxpayers, employers, and political subdivisions can all bring appeals over assessment, collection, refund, withholding, or distribution.

Penalties for Late Payment or Non-Withholding

Individuals who fall behind on payroll taxes owe interest at 6% per year on the unpaid amount plus an additional 1% for each month or partial month the tax remains delinquent.¹ If the collector sues to recover, the taxpayer also pays the costs of collection. Refusing to produce records or appear when a collector requests it is a misdemeanor carrying up to $500 in fines or six months in jail.

Employers face heavier consequences because the Act treats them as the primary collection point. An employer that fails to withhold or remit owes the full unwithheld amount plus a 10% penalty for each affected employee. Withholding the tax but not forwarding it produces the same liability.¹ Filing a false return is a second-degree misdemeanor with up to $2,000 in fines and up to two years of imprisonment. Willfully refusing to file a required return is a third-degree misdemeanor with up to $1,000 in fines or one year of imprisonment.

How Act 511 Taxes Interact With Your Federal Return

If you itemize, local earned income taxes are deductible on the federal return as part of the state and local tax (SALT) deduction, alongside property and state income taxes. For 2026, the SALT cap is $40,400, or $20,000 for married filing separately, and it phases down once modified adjusted gross income exceeds $505,000.⁸ Act 511 taxes alone rarely reach the cap, but combined with property and state income taxes they can matter for high earners.

Self-employed people and business owners can deduct local business privilege and mercantile taxes as business expenses on Schedule C. The IRS treats them as deductible licenses and regulatory fees paid to local governments.⁹

Realty transfer tax you pay when buying property becomes part of your cost basis in that property. The IRS defines basis as the amount paid for an asset including sales tax and other expenses connected with the purchase.¹⁰ On a $300,000 home, the combined 2% transfer tax adds $6,000 to basis, reducing taxable gain if the property later appreciates.

1
Pennsylvania General Assembly. Pennsylvania Act 511 of 1965 – Local Tax Enabling Act
2
Pennsylvania General Assembly. Pennsylvania Legislator’s Municipal Deskbook – Earned Income Taxes
3
Pennsylvania Department of Community and Economic Development. Local Services Tax
4
Pennsylvania General Assembly Local Government Commission. Local Services Tax
5
Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes
6
Internal Revenue Service. General Instructions for Forms W-2 and W-3
7
Pennsylvania Department of Community and Economic Development. Municipal Tax Information Form Tip Sheet
8
United States House of Representatives. Frequently Asked Questions – Tax Changes 2026 and the One Big Beautiful Bill
9
Internal Revenue Service. Instructions for Schedule C (Form 1040)
10
Internal Revenue Service. Topic No. 703, Basis of Assets