Personal Income Tax
Pennsylvania personal income tax is levied at the rate of 3.07 percent against taxable income of resident and nonresident individuals, estates, trusts, partnerships, S corporations, business trusts and limited liability companies not federally taxed as corporations.
Pennsylvania taxes eight classes of income: (1) compensation; (2) interest; (3) dividends; (4) net profits from the operation of a business, profession or farm; (5) net gains or income from the dispositions of property; (6) net gains or income from rents, royalties, patents and copyrights; (7) income derived through estates or trusts; and (8) gambling and lottery winnings, including cash prizes from the Pennsylvania Lottery. Noncash prizes from the PA Lottery are not taxed. A loss in one class of income may not offset against income in another class, nor may gains or losses be carried backward or forward from year to year.
The commonwealth employs three primary methods for collecting personal income taxes:
- estimated and final payments from individuals;
- employer withholding; and
- estimated withholding from nonresident partners or shareholders by partnerships and S corporations.
The Pennsylvania personal income tax does not provide for a standard deduction or personal exemption. However, individuals may reduce tax liabilities through certain deductions, credits and exclusions.
- Taxpayers may reduce taxable compensation for allowable unreimbursed expenses that are ordinary, actual, reasonable, necessary and directly related to the taxpayer’s occupation or employment.
- PA law allows three deductions against income: deductions for medical savings account contributions, health savings account contributions and IRC Section 529 tuition account program contributions.
- Credit against Pennsylvania income tax is allowed for gross or net income taxes paid by Pennsylvania residents to other states.
- Credit is available to lower income families and individuals receiving Tax Forgiveness.
- Tax credit programs also reduce income tax liability for qualified applicants.
- Taxpayers may exclude from compensation qualified payments to IRC Section 125 (cafeteria) plans for programs covering hospitalization, sickness, disability or death.
- Excluded from Pennsylvania-taxable income are capital gains from the sale of a principal residence for all taxpayers who satisfy ownership and use requirements.
- Taxpayers may also exclude from income personal use of employer-owned property.
For detailed and historic Pennsylvania personal income tax information, please review the Tax Compendium.