Pennsylvania Individual Income Tax
Pennsylvania has a unique system of taxing individual income. Residents and taxpayers in Pennsylvania pay a flat tax of 3.07%. This means that in Pennsylvania everyone pays 3.07%, no matter how much income they make. However, if your income is low enough, the state will forgive your tax debt, bringing your tax bill to zero.
Pennsylvania does not allow for a standard deduction or a deduction for personal exemptions (dependents). Therefore, the allowed deductions, tax credits, and exclusions from income become all the more important.
What Income Is Taxable?
Pennsylvania assesses tax on the eight classes of income:
- Net profits from a business, profession, or farm
- Net gains from the dispositions of property
- Net gains from rents, royalties, patents, and copyrights
- Income from estates or trusts
- Gambling and lottery winnings other than Pennsylvania Lottery Winnings
What Income Is Exempt?
Common income items that are exempt from Pennsylvania income tax include:
- Capital gains from the sale of a principal residence for those who satisfy ownership and use requirements
- Personal use of employer-owned property
- Child support
- Social security benefits, public and private pensions, and IRA distributions
- Worker’s compensation, unemployment benefits, and public assistance
- Sick pay
- Inheritances and gifts
For full details on all exempt income, items see the instructions to Form PA-40.
What Can I Deduct?
Pennsylvania does not allow many of the deductions that are allowed on your Federal tax return, limiting your deductions to the following three:
Employment-related expenses that were not reimbursed by your employer are allowed to be deducted from your gross compensation. Pennsylvania requires the costs to be ordinary, necessary, reasonable, and directly related to your occupation. You are allowed to deduct ALL of these costs as Pennsylvania does not impose the Federal limits on this deduction.
Medical savings and health savings account contributions are deductible to the extent they are deductible for Federal (IRS) tax purposes. If you received a deduction for these contributions on your Federal return, your Pennsylvania deduction would be the same as your Federal deduction. Your Federal deduction can be found on Line 25 of your Federal Form 1040.
529 college savings account contributions made during the tax year can be deducted up to the limit of $13,000 per beneficiary. This deduction applies to both Pennsylvania 529 plans and out-of-state 529 plans.
What Tax Credits Are Available?
Tax credits reduce your tax debt directly, similar to a payment. Pennsylvania offers these credits to individuals:
Resident Credit is a credit for gross or net income taxes paid to other states or foreign countries by Pennsylvania residents
Tax Forgiveness Credit is a credit extended to taxpayers who are single, married, and/or have dependents and whose income from all sources (including tax-exempt items like alimony, child support, social security, etc.) does not exceed certain income limits. Depending on your number of dependents and income you can receive a credit of anywhere from 10 percent to 100 percent your tax liability.
Filing Your Return
If you are a Pennsylvania resident, nonresident, or part-year resident, you must file a Pennsylvania tax return if you received over $33 in gross income or you sustained a loss from any transaction as an individual, sole proprietor, partner in a partnership, or Pennsylvania S-corporation shareholder. Forms are available on the Pennsylvania Department of Revenue's Web site. You can also call 1-888-PATAXES to order forms and have them mailed or faxed to you.
You can choose to mail your return, file over the telephone (Tele-file), fill out and submit your return online, or e-file using tax software such as TurboTax. Tax returns and payment must be postmarked on or before April 15th.