PA Department of Revenue - Signed Act 24 of 2023 - Impact

Posted by [email protected] on Mar. 1, 2024  /  Subscribe 0

alert announcement!

On 12/14/23 Department of Revenue for PA signed Act 34 and didn’t publish it till February 1^st. This change is retro back to Jan 1 2023. PA was contacted for clarification, any amount in Box 10 (Dependent Care) on Employees W-2 for 2023 is exempt from PA SIT and Locals with the exception of Philadelphia.

Act 34 of 2023 - Dependent Care Plan (Section 129) - Employer Info

Answer ID 4203   |    Published 02/01/2024 08:03 PM   |    Updated 02/09/2024 12:20 PM

 Act 34 of 2023 Employer Info

Is employer provided dependent care assistance under an IRC § 129 Dependent Care Assistance Program subject to PA Personal income Tax?

 Under Act 34 of 2023 (HB 1300), amounts paid or incurred by an employer for dependent care assistance provided to an employee are now excluded from the employee’s Pennsylvania Personal Income Tax obligation. This PA law change, which went into effect on Dec. 14, 2023, pertains to dependent care assistance programs under Title 26 of the Internal Revenue Code (26 U.S.C. § 129).

Due to the timing of this change, employers have presumably been withholding tax on this type of assistance throughout the 2023 tax year.

This could create an issue when an employee who has received this benefit from an employer files their PA Personal Income Tax Return (PA-40). Here are some steps to address this issue if you are affected:

• If you have already filed your W-2s with the Department of Revenue, file a corrected W-2 with the dependent care benefits (up to $5,000) excluded. Provide an updated W-2 to the employee to alert them of the change.
• If you have not filed W-2s with the Department of Revenue, you can file updated W-2s in which the dependent care benefits reported in box 10 are not included in box 16, State Wages. If you make this adjustment, it should not exceed $5,000 for tax year 2023.

Important: Do not file amended W-3s and Annual Withholding Reconciliation Statements (REV-1667s) removing the withholding previously made on dependent care benefits. Only amend the W-2 compensation. Employees will report any over withholding on their PA-40 and can obtain a refund, if applicable.

Future: Stop withholding for tax year 2024 on dependent care benefits (up to $5,000).

Employees can review Answer ID 4204 for more information.!

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