Pennsylvania State Income Tax for Individuals
Pennsylvania has a somewhat unique system of taxing individual income. Residents pay Pennsylvania state income tax at a flat rate of 3.07%. All Pennsylvanians pay 3.07%, no matter how much income they have, unlike with the progressive tax system that's imposed by the federal government and most other states.
A progressive system taxes income at a higher percentage as you earn more.
Pennsylvania doesn't offer a standard deduction or a deduction for personal exemptions—dollar amounts that you can claim for yourself, your spouse and your dependents. This makes the state's allowed deductions, credits, and exclusions from income even more important. Pennsylvania will forgive your tax debt, bringing your tax bill to zero if your income is low enough.
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
Only cash winnings from the Pennsylvania lottery are taxed. Non-cash winnings are tax-free.
What Income Is Exempt?
Common types of income 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
Federal Deductions Not Allowed at State Level
Pennsylvania doesn't allow many of the deductions that are permitted at the federal level, including medical and dental expenses, charitable donations, and casualty or theft losses. Deductions are limited to just three in this state: employment-related expenses, certain college savings plans, and contributions to medical or health savings plans.
Employment-related expenses that weren't reimbursed by your employer are deductible from your gross compensation. Pennsylvania requires that the costs be ordinary, necessary, reasonable, and directly related to your occupation. Expenses that qualify include:
- Union dues and agency fees
- Professional license fees
- Some educational costs
- Travel and mileage
- Office supplies and small tools
You're permitted to deduct all these costs. Pennsylvania doesn't impose limits on this deduction as federal law used to do before the Tax Cuts and Jobs Act eliminated this provision from the federal code.
Medical and Health Savings Accounts
Medical savings and health savings account contributions are deductible to the extent that they're deductible for federal tax purposes on the return you'd file with the IRS. Your Pennsylvania deduction would be the same as your federal deduction.
Your federal deduction can be found on line 12 of IRS Schedule 1, which accompanies your 2019 Form 1040, the return you'll file in 2020.
529 College Savings Plans
529 college savings account contributions made during the year can be deducted up to $15,000 per beneficiary ($30,000 if married filing jointly). This deduction applies to both Pennsylvania 529 plans and out-of-state 529 plans.
What Tax Credits Are Available?
Credits reduce your tax debt directly, just as though you had made a payment. Pennsylvania offers two primary credits to individuals.
- The Resident Credit is a credit for gross or net income taxes paid to other states or foreign countries by Pennsylvania residents.
- The Tax Forgiveness Credit is extended to taxpayers who are single, married, and/or have dependents and whose income from all sources, including tax-exempt alimony, child support, and Social Security, does not exceed certain income limits. You can receive a credit of anywhere from 10% to 100% of your tax liability, depending the number of your dependents and your income.
Filing Your Return
You must file a Pennsylvania return if you received income that generates $1 or more in tax, or if you sustained a loss from any transaction as an individual, sole proprietor, partner in a partnership, or Pennsylvania S-corporation shareholder. This rule applies to Pennsylvania residents, nonresidents, or part-year residents.
Forms are available on the Pennsylvania Department of Revenue's website. You can also call 1-888-PATAXES to order forms and have them mailed or faxed to you.
You can mail your return, file over the telephone through Tele-file, fill out and submit your return online, or e-file using tax software, such as TurboTax. Returns and payment must normally be postmarked on or before April 15th.