Pennsylvania State Tax Overview (2024)

Quick Reference

Tax Structure

State Income Tax: Flat 3.07% rate

Local Earned Income Tax: 0.5% to 3.9%+ (varies by municipality)

No Sales Tax on Clothing: Sales tax 6% (7% in Philadelphia/Allegheny County) but clothing exempt

Retirement Income: Fully exempt (pensions, 401k, IRA, Social Security)

File Organization

This overview links to detailed files for each topic:

• state-income-tax.md - Flat 3.07% rate, eight classes of income
• local-eit.md - Local Earned Income Tax by municipality, PSD codes
• property-tax.md - Property tax/rent rebate program
• retirement-income.md - Complete exemption for retirement income

Key Numbers (2024)

State Income Tax Rate: 3.07% (flat rate, no brackets)

No Standard Deduction: PA does not allow standard or itemized deductions

No Personal Exemptions: Unlike federal, PA has no exemptions

Local EIT Range: 0.5% to 3.9%+ depending on municipality

Philadelphia Resident Tax: 3.8398%

Philadelphia Nonresident Tax: 3.4481%

Key Deadlines

Individual Returns: - April 15 (calendar year) - 6-month extension available (file Form REV-276)

Estimated Tax: - April 15, June 15, September 15, January 15 - Use Form PA-40 ES

Local Tax Deadlines: - Vary by municipality and tax collector - Most follow state deadlines but check local requirements

Details

Unique Features

Eight Classes of Income:

PA taxes income in eight specific classes - not all income is taxable:

Class 1 - Compensation: - Wages, salaries, tips - Bonuses, commissions - Subject to state and local EIT

Class 2 - Interest: - Interest income from all sources - State tax only (not subject to local EIT)

Class 3 - Dividends: - Dividend income - State tax only (not subject to local EIT)

Class 4 - Net profits: - Self-employment income - Business income - Subject to state and local EIT

Class 5 - Net gains: - Capital gains - Sale of property - State tax only (not subject to local EIT)

Class 6 - Rents and royalties: - Rental income from real property - Royalty income - State tax only (not subject to local EIT)

Class 7 - Estates and trusts: - Income from estates/trusts - State tax only (not subject to local EIT)

Class 8 - Gambling and lottery: - Gambling winnings - Lottery prizes - State tax only (not subject to local EIT)

What's NOT Taxed

Retirement income (see retirement-income.md): - Social Security benefits - Pensions (government and private) - IRA distributions - 401(k), 403(b), 457 distributions - Military retirement - Railroad retirement

Other exempt income: - Life insurance proceeds - Gifts and inheritances - Workers compensation - Unemployment compensation - Most welfare benefits

Local Tax Complexity

Multiple layers of local tax:

Earned Income Tax (EIT): - Varies by municipality (see local-eit.md) - Tax on wages and net profits only - Split between resident municipality and school district - Reciprocity with some neighboring states

Local Services Tax (LST): - Up to $52 per year - Imposed by some municipalities - On employees working in municipality

Business Privilege Tax: - Some municipalities (notably Philadelphia) - On net income of businesses

Residency Rules

PA resident defined:

Domicile test: - Permanent legal residence - Intent to remain indefinitely

183-day rule: - Present in PA for 183+ days during tax year - Automatically considered resident

Part-year residents: - Allocate income by class - Some classes allocated by days (compensation) - Others by source (interest, dividends)

Common Multi-State Scenarios

PA-NJ Commuters: - Reciprocal agreement for wages only - NJ residents working in PA: pay NJ tax only - PA residents working in NJ: pay PA tax only - Must file Form REV-419 with employer - Self-employment income NOT covered (no reciprocity)

PA-Other States: - No reciprocity with NY, DE, MD, OH - Credit for taxes paid to other state - Must file both states - Claim credit on PA Schedule G-L

Remote Work: - PA does NOT have convenience of employer rule - Wages taxed in state where services performed - PA resident working remotely from PA: PA tax only - PA resident working remotely for NJ employer from PA: PA tax, not NJ

Credits Available

Tax Forgiveness Credit: - For low-income taxpayers - Income thresholds vary by filing status - Can reduce tax to zero - Automatic if qualified

Educational Improvement Tax Credit: - For businesses making qualified contributions - Not applicable to individuals

Use Tax Credit: - Credit for PA use tax paid on purchases - Limited application

Philadelphia Special Rules

Philadelphia has separate city tax:

Wage Tax: - 3.8398% for residents - 3.4481% for nonresidents working in Philadelphia - Administered separately from state

Business Income and Receipts Tax (BIRT): - On business income generated in Philadelphia - Complex apportionment rules

Net Profits Tax: - Self-employed individuals - 3.8398% on net profits from Philadelphia business

School Income Tax: - Eliminated (was 0.5%) - Rolled into wage tax rates above

Filing Requirements

Must file PA-40 if: - PA resident with gross income $33 or more - Nonresident with PA-source income - Part-year resident

Exceptions: - PA-40 EZ for simple returns (compensation only, no credits) - PA-41 for estates and trusts

Practical note: - Almost all taxpayers must file - Very low filing threshold - Even if no tax due

Citations

Pennsylvania Tax Code: - 72 P.S. § 7301 et seq. - Tax Reform Code of 1971 - 72 P.S. § 7303 - Classes of income - 72 P.S. § 7301(m) - Compensation defined - 72 P.S. § 7302 - Imposition of tax - 72 P.S. § 7306 - Exclusions from taxable income

Regulations: - 61 Pa. Code Chapter 101 - Personal Income Tax - 61 Pa. Code § 101.6 - Classes of income - 61 Pa. Code § 101.8 - Exclusions

PA Department of Revenue: - Personal Income Tax Guide (REV-466) - Tax Forgiveness Information (REV-1045) - https://www.revenue.pa.gov/

Forms: - PA-40 - Individual Income Tax Return - PA-40 EZ - Simplified Return - PA-40 ES - Estimated Tax Payment Voucher - PA-40 NRC - Nonresident Consolidated Tax Return - REV-276 - Extension Application - REV-419 - Employee's Nonwithholding Application Certificate - Schedule G-L - Credit for Taxes Paid to Other States - Schedule SP - Special Tax Forgiveness

Local Tax Information: - Pennsylvania Municipal League - Local tax collector contact information by municipality - PSD Code Directory (Pennsylvania School District codes)