You generally have to file a Pennsylvania state income tax return if you were a resident, nonresident or part-year resident and you received Pennsylvania gross taxable income in excess of $33 for the year, even if no tax is due. So you may be required to file a Pennsylvania tax return even if you do not have to file a federal return. You can file your Pennsylvania state income tax return electronically, either directly completing the forms or using online software, or you can file a paper return using Form PA-40.
When you prepare your Pennsylvania state income tax return, you report all your taxable income and then subtract any deductions you qualify for to determine your adjusted Pennsylvania taxable income. There are no personal exemptions, standard or itemized deductions for Pennsylvania income tax purposes. The Pennsylvania state income tax is 3.07% of your taxable income. From the tax you subtract the Pennsylvania state income tax that was withheld from your pay and any estimated payments you made during the year, and any credits you qualify for. You can add any voluntary contributions you want to make. The end result is your refund or the amount you owe.
Income not taxable in Pennsylvania
Certain types of income are not taxable in Pennsylvania, including social security and railroad retirement benefits, military pension benefits, civil service annuities, United Mine Workers pensions, and other types of pension, old age, or retirement benefits you receive after you retire. Workers’ compensation, payments for injuries received while working, sick pay and disability benefits are not subject to Pennsylvania income tax. Active-duty pay you receive as a member of the U.S. Armed Forces for service outside Pennsylvania is exempt from income tax in Pennsylvania. Also exempt are unemployment compensation, public assistance, child support and alimony.
Contributions to a retirement plan sponsored by your employer, such as a 401(k) plan are taxable compensation for Pennsylvania state income tax purposes, even if they are excluded for federal income tax purposes. Also, you are not allowed to deduct your contributions to an IRA on your Pennsylvania tax return. If you receive benefits from a retirement plan before you are eligible to retire, the benefits would generally be taxable in Pennsylvania. But if you roll over the benefits into another qualified retirement plan or IRA and the rollover is not taxable for federal tax purposes, it would not be taxable in Pennsylvania either.
Distributions from the State Employees’ Retirement System, the Pennsylvania School Employees’ Retirement System, the Pennsylvania Municipal Employees’ Retirement System and the U.S. Civil Service Commission Retirement Disability Plan are not taxable in Pennsylvania.
Distributions from an IRA that you receive before reaching age 59 ½ are taxable in Pennsylvania to the extent they exceed your previously taxed contributions. There are no exceptions in Pennsylvania similar to the federal exceptions for distributions received before you reach age 59 ½. If you rollover the distribution from a traditional IRA to a Roth IRA in a trustee to trustee transfer, or if you invest the entire withdrawal in a Roth IRA within 60 days, you are not subject to tax. In Pennsylvania, the distributions you receive from an IRA after you reach age 59 ½ are not taxable.
Interest you earn on U.S. government obligations such as savings bonds or Treasury bills that you included on your federal return are not taxable in Pennsylvania. Also excluded is interest income on obligations of the Commonwealth of Pennsylvania and political subdivisions of Pennsylvania.
On your Pennsylvania tax return you can claim a deduction for contributions to a medical savings account, a health savings account, or a 529 tuition savings account program. To claim these deductions you need to file Schedule O.
The rules for deducting contributions to a medical savings account or a health savings account on your Pennsylvania return are the same as the rules for the deductions on your federal return. The maximum allowable deduction for contributions to a 529 tuition savings account is $12,000 per beneficiary. Both you and your spouse could each deduct up to $12,000 per beneficiary.
The total of the deductions for contributions to a medical savings account, a health savings account, or a 529 tuition savings account cannot be more than your taxable income.
Credits
If you paid personal income tax to another state or country, you can claim the Resident Credit. You need to complete Schedule G-R, “Reconciliation of Taxes Paid to Other States or Countries” and either Schedule G-S or Schedule G-L and attach a copy of the tax return you filed with the other state or country. You would use Schedule G-S if you have only wages subject to tax in another state or country, or interest and dividends subject to tax in foreign countries. Schedule G-L is used for any type of income subject to tax in another state or country.
Low-income taxpayers may qualify to have all or a percentage of their Pennsylvania tax liability forgiven. The amount that is forgiven is based on your level of taxable income plus other sources of nontaxable income, and the number of children you have. There is an Eligibility Income Table in the instructions for Form PA-40 that shows the qualifying amounts and the corresponding percentage of tax forgiveness. To claim this credit you have to complete PA Schedule SP.
There are various credits available for businesses in Pennsylvania, including credits for employment incentives, jobs creation, research and development, educational improvement, alternative energy, resource enhancement and protection and investments in Keystone Innovation Zones, among others. To claim these credits you need to complete PA Schedule OC and submit the certificate or notification that approved each credit you are claiming.
Sources: Pennsylvania Personal Income Tax Return Instructions – Pennsylvania Department of Revenue
