Pennsylvania small business taxes

Pay Your Pennsylvania Small Business Taxes

Most small businesses are required to pay state taxes. Learn about your Pennsylvania business taxes and how we can help you stay compliant.

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One of your most important obligations as a Pennsylvania business owner is to keep your business legally compliant, and paying your taxes correctly at the federal, state, and local level is a major part of that. But knowing what taxes apply to your business and when they are due can cause anxiety for even the most experienced entrepreneurs. Luckily, we are here to help. Read on to learn about the types of state taxes that might apply to your Pennsylvania business, how to pay them, and what tools we can provide to make the process a little smoother when tax time rolls around.

We offer a Worry-Free Compliance Service to help you keep track of important tax and other compliance deadlines like annual reports. With this service, you will get an alert whenever you have a compliance or tax deadline, so you can effortlessly meet those requirements.

If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.

Step 1: Establish your Pennsylvania business’s corporate income tax obligations

One of the primary Pennsylvania small business taxes is the state’s corporate income tax. This tax will vary depending on the type of business entity and its federal classification. 

Income Tax Obligations for Corporations

Like most other states, Pennsylvania requires C corporations to pay standard income taxes. The basic rate tax is 9.99% of the corporation’s federal taxable income. Pennsylvania’s corporate business tax rate is the second highest rate in the nation, but it’s a flat rate. The corporate income tax doesn’t apply to not-for-profit organizations, nor does it apply to corporations that are subject to certain other state taxes like the gross premiums tax. 

In contrast to C corporations, S corporations need to pay Pennsylvania corporate net income tax only for built-in gains. but they still have to file returns. 

Corporations must file their tax report (Pennsylvania Corporate Net Income Tax Report) 30 days after the federal due date. This deadline applies regardless of whether they file taxes according to the calendar year or the fiscal year. 

Income Tax Obligations for Pass-Through Entities

Pass-through entities — entities like partnerships, limited liability companies (LLCs), and sole proprietorships — aren’t required to pay business income taxes. Instead, the owners or controllers of these business entities pay tax as individuals. As of 2021, the personal income tax rate in Pennsylvania is a flat 3.07%.

Pennsylvania has other small business income taxes as well. Pennsylvania corporations must also pay corporate loans tax. As the name suggests, this tax is imposed on the nominal value of all bonds and other forms of indebtedness incurred by Pennsylvania corporations.

Finally, there are special taxes for certain classes of corporations.  Companies involved in providing electricity, telecommunications, transportation, and banking services have to pay a gross receipts tax. Similarly, domestic and foriegn insurance companies must pay a gross premiums tax.

Step 2: Determine your Pennsylvania business’s employment taxes 

After you have taken care of your business’s income taxes, the next part of learning how to file small business taxes in Pennsylvania is understanding your business’s employment tax responsibilities. Pennsylvania law requires that all resident and nonresident corporations withhold Pennsylvania personal income tax from their employees, assuming the employees are either:

  • Residents of Pennsylvania who perform services within or outside the commonwealth
  • Nonresidents of Pennsylvania who perform services within the commonwealth

This withholding requirement applies to all employers, whether they be individuals, corporations, LLCs, or associations. Employers must withhold an amount equivalent to 3.07% of each employee’s compensation. 

The due date for employee taxes varies based on the amount collected. The more tax collected, the more frequently it must be submitted. If total withholding is less than $300 per quarter, then the taxes are paid on a quarterly basis. Specifically, the taxes are due on the last day of January, April, July, and October. In the event that the total withholding is between $300 and $999 per quarter, the taxes are due on the 15th day of each month. If total withholding is between $1,000 and $4,999, then the taxes are due “within three banking days of the clause of the semi-monthly period.” Finally, if total withholding is over $5,000 per quarter, then the taxes are due on the Wednesday following the employer’s payday if the pay day falls on a Wednesday, Thursday, or Friday. If the employer’s payday falls on a Saturday, Sunday, Monday, or Tuesday, then the tax is due the following Friday. 

Step 3: Establish your Pennsylvania business’s additional state tax obligations

Your Pennsylvania business might also have additional state tax obligations. Common types include sales tax, franchise or privilege taxes, unemployment taxes, and excise taxes. 

Sales Taxes

As with most states in the country, Pennsylvania has a sales tax. The default sales tax rate is 6%. An additional local tax of 1% is added to purchases in Allegheny County, while a local tax of 2% is levied on purchases made in Philadelphia. However, food, candy, clothing, pharmaceutical, and residential heating fuels are exempt from the tax. 

The commonwealth also levies a use tax of 6% for purchases that are made outside Pennsylvania for goods or services that are used within Pennsylvania, like online sales of goods made to Pennsylvania residents.

Sales and use taxes are typically due on or around the 20th day of the following month. 

Franchise or Privilege Taxes

Franchise taxes (also called privilege taxes) are taxes that states impose on businesses for the “privilege” to operate within that state. Although Pennsylvania has a corporate income tax, it no longer has a general franchise or privilege tax. Prior to 2016, however, both corporations and LLCs with capital stock had to pay capital stock tax.  

Unemployment Taxes

Pennsylvania’s Unemployment Compensation (UC) tax is imposed on both employers and employees to provide temporary income to employees who lose their jobs through no fault of their own. This tax applies to all Pennsylvania companies that employ an individual within the commonwealth. 

The contribution tax rate varies slightly from year to year. This tax rate also changes based on whether it’s the business’s first year of paying the UC tax and whether it’s a construction employer. For instance, the contribution tax rate for new, non-construction employers is currently 3.689%. The contribution tax rate for new construction employers is 10.2238%. After an employer has paid its employees for two years, it’s eligible for an experience-based contribution tax rate. This experience-based contribution tax rate is calculated based on the specific financial characteristics of the business.

Employers must file Unemployment Compensation reports and submit their contributions each quarter. Both the reports and the contributions are due as follows: 

  • For the first calendar quarter, which ends on March 31, employers must submit their report and payment by April 30.
  • Reports and contributions are due no later than July 31 for the second calendar quarter, which ends on June 30.
  • For the third calendar quarter ending on September 30, businesses must file their reports payments by October 31.
  • For the fourth calendar quarter ending on December 31, reports and payments are due no later than January 31.

Employers must file reports electronically via the commonwealth’s Office of Unemployment Compensation portal. 

Excise Taxes

Excise taxes are taxes for certain products like alcohol, tobacco, and marijuana. Pennsylvania imposes a wine excise tax of $2.50 per gallon. This tax is due on a quarterly basis on the 20th day of the month following the end of each calendar quarter. Pennsylvania also imposes a cigarette excise tax of $2.60 per pack of 20 cigarettes. The due dates for the cigarette tax can be found on the Department of Revenue’s website.

Step 4: Prepare to file and pay your Pennsylvania business taxes

Businesses in Pennsylvania must generally send their business tax filings and payments to the Pennsylvania Department of Revenue. The primary exception to that rule is the UC tax, which is due to the Office of Unemployment Compensation, not the Department of Revenue. 

The preferred way to file a tax report and pay your taxes is online filing. You can file online using the Department of Revenue’s MyPath Portal. Due to the convenience and ease of filing online, the commonwealth strongly recommends you use the online method to file your taxes. 

Paying taxes correctly starts with keeping complete and precise business records. You need to prepare to pay your taxes first by getting your business records in order.  Business records include any documents that record business transactions and client relationships, including receipts, legal documents, contracts, invoices, and accounting records. Once that is accomplished, paying your business’s taxes becomes much easier. 

Depending on the size and complexity of your business, gathering invoices and managing finances can become unwieldy. If you struggle with collecting and organizing your business’s information, we can help you with our ZenBusiness Money App. This app helps you to easily transmit and accept different forms of payment, send customized invoices, and manage your business’s clients with our easy-to-use Smart Dashboard. 

Do I need an accountant?

It’s not uncommon for small businesses to require the assistance of a financial advisor or tax professional. There isn’t a law that prohibits you from preparing and filing your taxes on your own, but we don’t recommend this approach. The reason for this is because there could be serious financial and legal consequences to you and your business if your taxes aren’t completely correct. With such large risks, there is no reason to take a chance with your business’s financial future.

The good news is that tax professionals are easy to find and hire. In most cases, they can file your business’s taxes for a modest sum. If you’re unfamiliar with how to find a good tax professional, consult the IRS’s guide on tax return preparer credentials and qualifications. Their guide will help you find a knowledgeable tax professional for your business.

Not sure how to stay compliant? Learn more about legal compliance for small business owners

How We Can Help

We’re dedicated to helping small business owners reach their goals. That means standing by to support your business at all levels. Our ZenBusiness Money App can help you prepare your tax returns by organizing your financial information.

If your small business is still in the formation phase, our Pennsylvania LLC Formation Services or Corporation Formation Services can help you get started.

No matter what stage your business is at, we have the tools to help you succeed.

Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

FAQs

  • How much can a Pennsylvania small business make before paying taxes?

    Pennsylvania doesn’t have a minimum earnings threshold for small businesses. That means that a Pennsylvania C-corporation must pay state income taxes on any and all revenue it makes. In addition, your business may have to pay other state taxes, depending on its structure and industry.

  • What percentage does a Pennsylvania small business pay in taxes?

    This depends on your business. C corporations pay the corporate net income tax at a flat rate of 9.99%. S corporations don’t pay corporate net income tax. Instead, the owners of S corporations are taxed at the personal level. Pennsylvania’s personal income tax rate is 3.07%. Whether your business has to pay other taxes depends on its configuration and business activities.

  • How does a Pennsylvania small business pay taxes?

    For those business owners who want to know how to file small business taxes in Pennsylvania in the best way possible, use the Pennsylvania Department of Revenue’s MyPATH tax portal. If you need to pay unemployment compensation tax, file your return with the Office of Unemployment Compensation.

  • Do I have to file taxes for my small business in Pennsylvania?

    Yes. Both Corporations and pass-through entities (like LLCs) have to file income tax reports in Pennsylvania, even if they don’t need to pay income taxes. Furthermore, your business will likely need to file additional tax returns for other state taxes.

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