Personal Taxes

Earnings tax

Pennsylvania personal income tax is levied at 3.07 percent on taxable income of resident and non-resident individuals, estates, trusts, partnerships, suburban companies, business trusts, and limited liability companies that are not federally incorporated as corporations be taxed.

Pennsylvania taxes eight income brackets: (1) compensation; (2) interest; (3) dividends; (4) Net profits from the operation of a company, profession or agricultural operation; (5) net profits or income from the disposal of assets; (6) net profits or income from rentals, royalties, patents and copyrights; (7) income from estates or trusts; and (8) gambling and lottery winnings, including Pennsylvania Lottery cash prizes. Material prizes from the PA lottery are not taxed. A loss of one income class may not be offset against income from another income class, nor can gains or losses be carried back or carried forward from year to year.

The Commonwealth uses three main methods of collecting personal income taxes:

  • estimated and final payments from individuals;
  • Employer retention; and
  • estimated withholding taxes from non-resident partners or shareholders through partnerships and S-corporations.

Pennsylvania personal income tax does not provide a standard withholding or personal exemption. However, individuals can reduce tax liabilities through certain deductions, credits, and exclusions.

Deductions:

  • Taxpayers may reduce the taxable allowance for chargeable, non-reimbursed expenses that are ordinary, actual, reasonable, necessary and directly related to the employment or employment of the taxpayer.
  • The PA Act allows three deductions from income: deductions for health savings account contributions, health savings account contributions, and contributions to the IRC Section 529 Student Account Program.

Credits:

  • Pennsylvania income tax credit is allowed for gross or net income taxes paid to other states by Pennsylvania residents.
  • Loans are available to lower-income families and those receiving tax relief.
  • Tax credit programs also reduce income tax liability for qualified applicants.

Exclusions:

  • Taxpayers may exclude eligible payments to IRC Section 125 (cafeteria) plans for programs that cover hospitalization, illness, disability, or death.
  • Excluded from Pennsylvania taxable income are capital gains from the sale of a primary residence for all taxpayers who meet ownership and use requirements.
  • Taxpayers can also exclude the private use of the employer’s property from income.

For detailed and historical information on Pennsylvania income tax, see the Tax Compendium.

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