Pennsylvania Enacts Job Creation Incentive, but Beware of the Clawback

December 10, 2012

Pennsylvania has enacted a new job creation law allowing qualified companies to retain 95% of the withholding taxes for the individuals employed in the newly created jobs. The Promoting Employment Across Pennsylvania Act (L. 2012, H2626, effective 10/26/2012), which was signed into law by Governor Tom Corbett on October 26, 2012, offers the 95% retention incentive to for-profit corporations, partnerships, and other entities that create 250 new jobs in a five-year period (with 100 of those jobs required to be created in the first two years). The employer must also offer health insurance coverage to its full-time employees and pay at least 50% of the premiums for the health insurance. The program expires on January 1, 2018.

Depending on the wages paid to the new employees, which must be at least equal to the average annual wages in the county, qualifying companies can retain the 95% of withholding taxes anywhere from seven to ten years. A qualifying company may also elect to remit 100 percent of the withholding taxes and receive a rebate equal to the amount otherwise authorized to be retained under the act. Qualifying companies must also notify the new employees that their withholding taxes are being retained. Further, employees whose withholding taxes are retained under the program will be credited for the total retained amount as if those amounts were actually remitted to Pennsylvania.

Companies must apply to the Department of Community and Economic Development of the Commonwealth for consideration for the incentive program. Upon approval of an application, the qualifying company and the Department are required to enter into an agreement specifying the terms and conditions that the qualifying company must comply with to receive the withholding retention benefits. However, failure to the comply with the terms of agreement can result in termination of the agreement, the discontinuance of continued benefits, as well as remittance of the total retained withholding taxes. Thus, potential applicants should consider the potential triggering of this claw-back provision prior to applying for program.

To learn more about how this tax legislation may affect your business, please contact your Aronson tax advisor or Michael Colavito of the Aronson Tax Services Group at 301.231.6200.