A personal income tax is levied in Pennsylvania against the taxable income of resident and nonresident individuals, businesses, and estates and trusts.
Pennsylvania Income Tax Rate
Pennsylvania has a flat tax rate of 3.07 percent on individual income tax, with no standard deductions or personal exemptions. If your income is low enough, however, your income tax bill may be reduced to zero.
A credit is allowed for income taxes paid to other states by residents of Pennsylvania. Pennsylvania's top personal income tax rate ranks 40th among states levying an individual income tax. However, many Pennsylvania taxpayers also pay a local tax on earned income which increases that tax burden relative to other states which do not collect local income taxes.
Income That Is Subject to Taxes
Taxes in Pennsylvania are collected on eight classes of income:
- net profits from business, profession, or farm
- net gain from sale or disposition of property
- net income from rents, royalties, patents, and copyrights
- gambling and lottery winnings (other than Pennsylvania state lottery winnings)
- income from estates or trusts
Income That Is Exempt from Taxes
Items that are commonly exempt from Pennsylvania state income tax include:
- Social Security benefits, public and private pensions, and IRA distributions
- Child support
- Inheritance and gifts
- Workers compensation, unemployment benefits, and public assistance
- Capital gains from the sale of a principal residence (as long as it meets ownership and use requirements)
Pennsylvania does offer special tax forgiveness provisions for certain low-income taxpayers whose income does not exceed $6,500 (filing as a single) or $13,500 (married filing separately or jointly, plus $9,500 for each dependent). For a married couple with 2 children, the income allowance for 100 percent tax forgiveness would be $32,000. For a single parent with 2 children, the income allowance for 100 percent tax forgiveness is $25,500.
Wages earned from work performed in Pennsylvania by residents of Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia are not subject to Pennsylvania State Income Tax under a reciprocal personal income tax agreement. If Pennsylvania taxes were improperly withheld from residents of these states, a tax return should be filed to obtain a refund. Taxes are required to be paid in the reciprocal state in which the wages were earned.
Local Income Taxes
In addition to state income tax, Pennsylvania localities are permitted to assess a wage tax on earned income only (known as the Earned Income Tax). Generally, the Earned Income Tax, or wage tax, is split between the municipality and the local school district. Most Pennsylvania municipalities have a 1 percent cap for wage taxes, except in Home Rule municipalities (namely Philadelphia, Pittsburgh, and Scranton) which are not subject to a minimum tax rate.
How Pennsylvania Income Taxes Compare
According to the Tax Foundation, Pennsylvania's combined state/local income tax burden is estimated at 10.1 percent of income. Above the national average of 9.8 percent, this ranks the state 10th highest nationally. Unfortunately, personal property taxes in the state only further increase the tax burden.
Filing Your Personal Income Tax Return
You must file a Pennsylvania income tax return (this applies to residents, part-year residents, and non-residents) if your Pennsylvania taxable income exceeds $35 during the year or if you incurred a loss from any transaction as an individual, sole proprietor, partner, or shareholder of an S corporation.
Completed tax forms and payment must be postmarked on or before April 15. Personal income tax forms are available in many area libraries, government offices, post offices, and from the Pennsylvania Department of Revenue's website.