Two Pittsburgh Payroll Taxes Most New Employers Miss, and Why Q3 Is Due on Two Different Dates

2026-10-18 · RKube Services

The City of Pittsburgh Payroll Expense Tax (0.55%, employer-paid) and the $52 Local Services Tax for 2026: who owes them, how to file, and why Q3 is due October 31 and November 30.

Hire your first employee in Pittsburgh and you'll set up Pennsylvania withholding, the local earned income tax and unemployment. Then, a few months later, a letter from the City's Finance Department asks why you haven't filed the Payroll Expense Tax or remitted the Local Services Tax. Plenty of small employers find out about these two only that way.

Both are City of Pittsburgh taxes, and they work in opposite directions. The Payroll Expense Tax is paid by the business and can never come out of an employee's check. The Local Services Tax is a flat amount per worker that the employer withholds from pay. They also have different quarterly due dates, which is why the third quarter of 2026 lands on October 31 for one and November 30 for the other.

This guide covers both for tax year 2026, using the City's own Payroll Tax regulations and Local Services Tax regulations, with examples for a small firm in Pittsburgh, PA.

The Payroll Expense Tax: 0.55% paid by the employer

The City levies the Payroll Tax at 0.55% of payroll expense generated by an employer doing business in Pittsburgh. A few rules in the regulations surprise people:

• It's the employer's cost. Section 301 says the tax may not be deducted from employees' wages under any circumstance.
• Only work done in the City counts. If some employees work partly outside city limits, payroll is apportioned. Employers who don't track hours by location can use a representative test period or a survey based on real data to set a percentage, which the City can review.
• Contractors may count. The regulations say people you pay on a Form 1099 can be reclassified as employees for this tax, whatever the common-law test says. It may be necessary to include 1099 payments in the calculation.
• Partners and self-employed owners are covered too. A partnership is an employer as to its employees and as to its partners who work in the City. Partners and self-employed people pay on their "taxable distributions" from each business in the City, measured with the same accounting method used for Pennsylvania personal income tax. Passive income like dividends, most capital gains and rental income without substantial services is excluded.
• Who's exempt. Governmental entities aren't employers under the regulations. A charity that qualifies under Pennsylvania's Institutions of Purely Public Charity Act still files a return but pays only on payroll tied to activity that would be unrelated business income under Section 511 of the Internal Revenue Code.

New employers have 15 days to register with the Treasurer. The first return covers only the part of the quarter you were in business.

Quarterly due dates

Since 2016, the Payroll Tax has been due two months after each quarter ends:

If you close the business during the year, the final return is due 10 days after you stop. Late payments add interest at 6% a year plus a penalty of 1% for each month or part of a month the tax stays unpaid.

The Local Services Tax: $52 a year per worker, withheld from pay

The Local Services Tax (LST) is a tax on each person for the privilege of working in the City. In Pittsburgh it's $52 a year, and it's collected by the municipality of the person's primary place of employment.

How much to withhold. You divide $52 by the number of pay periods in your year. The City's own example: $52 over 26 biweekly pay periods is $2 per paycheck. Weekly payroll works out to $1 a week.

Who's exempt. A worker who expects less than $12,000 of earned income and net profits from all sources within the City for the year can file an exemption certificate with the employer, and you don't withhold. The regulations also exempt honorably discharged veterans who, from their service, are blind, paraplegic, a double or quadruple amputee, or rated 100% permanently disabled by the VA, and members of a reserve component called to active duty at any time during the year. Keep exemption certificates for three years.

Owners pay it too. Sole proprietors and partners are treated as employees for the LST. A self-employed person or partner with an office in the City, including a home office, is subject to it and files Form LS-3 to pay directly.

When to remit. Employers file a return of LST withheld for each quarter by the last day of the month after the quarter:

Employer returns are filed on Form LS-1. An employer who fails to withhold or doesn't pay over the tax is liable for the full amount, so missing the LST setup is an employer cost, not just a paperwork issue.

A worked example for the third quarter

A small architecture firm in Pittsburgh, PA has five employees who work at its downtown office and one designer who works full time from home in Mt. Lebanon, PA, outside the City. It runs weekly payroll.

Q3 2026 payroll: $180,000 total, of which $30,000 is the remote designer.

Payroll Expense Tax. Only City work counts, so the base is $150,000.

• $150,000 x 0.55% = $825
• Paid from the firm's own funds by November 30, 2026
• Booked as a payroll tax expense, not a deduction from wages

Local Services Tax. The five downtown employees each earn well over $12,000 in the City, so none qualifies for the low-income exemption. The remote designer's primary place of employment is outside Pittsburgh, so the City's LST doesn't apply to that person.

• $1 a week x 13 weeks x 5 employees = $65 withheld in Q3
• Remitted on Form LS-1 by October 31, 2026
• Booked as a payroll liability when withheld, cleared when paid

What a late Q3 Payroll Tax payment costs. If the firm pays the $825 on January 31, 2027, two months late, the regulations add a penalty of 1% a month (about $16.50) plus interest at 6% a year for two months (about $8.25). Not huge, but it repeats every quarter if the calendar is wrong.

Where these fit with your other Pittsburgh payroll taxes

The Payroll Expense Tax and LST sit on top of the payroll taxes most employers already know about:

• Pennsylvania personal income tax withholding
• the local earned income tax under Act 32, withheld and sent to the employee's tax collection district
• Pennsylvania unemployment compensation
• federal withholding, Social Security, Medicare and FUTA

Payroll software often handles the state and Act 32 pieces automatically and leaves the City items for you to set up. Check that your PA payroll provider files LS-1 and the Payroll Tax return, or put both on your own calendar.

Setting it up in the books

1. Register with the City within 15 days of starting business in Pittsburgh. Keep the account number with your payroll records.
2. Add an LST deduction to each employee who works in the City. Set the per-period amount from your pay frequency and file any exemption certificates.
3. Tag work location on each employee. It drives both the Payroll Tax apportionment and the LST.
4. Accrue the Payroll Tax monthly. Post 0.55% of City payroll to an expense account and a payable, so the November 30 bill isn't a surprise.
5. Review 1099 contractors. If a contractor works like an employee in the City, include their pay in the Payroll Tax base or document why it's excluded.
6. Owners: plan for both taxes. Partners and sole proprietors working in the City may owe the Payroll Tax on taxable distributions and $52 of LST, filed on their own returns.

Common questions

Can I deduct the Payroll Expense Tax from employees' pay?

No. The City's regulations prohibit it in every case.

Is the LST $52 everywhere in Pennsylvania?

No. Many Pennsylvania municipalities levy an LST, and the amount varies by municipality. Pittsburgh's is $52, and it goes to the municipality of the primary place of employment.

An employee works in Pittsburgh half the year. What do I withhold?

Withhold the per-period LST for each pay period they work in the City. The City's regulations walk through examples like this, including refunds when too much was withheld across employers.

Do I file a Payroll Tax return if my business is a nonprofit?

A qualifying purely public charity still files, but pays only on payroll tied to unrelated business activity.

This guide is general information about the City of Pittsburgh Payroll Expense Tax and Local Services Tax for 2026, not tax or legal advice for your business. Check the City Finance Department's current forms before filing.

We run payroll and set up City of Pittsburgh filings for small employers in Pennsylvania and across the US: rkubeservices.com.