And unlike with federal taxes, Pennsylvania doesn’t offer a standard deduction—a set amount that lets you lower your taxable income. This makes the state’s allowed deductions, credits, and exclusions from income even more important. Pennsylvania will forgive your tax debt, bringing your tax bill to zero if your income is low enough.
What Income Is Taxable in Pennsylvania?
Pennsylvania assesses tax on the eight classes of income:
CompensationInterestDividendsNet profits from a business, profession, or farmNet gains or income from the dispositions of propertyNet gains or income from rents, royalties, patents, and copyrightsIncome from estates or trustsGambling and lottery winnings
What Income Is Exempt in Pennsylvania?
Common types of income that are exempt from Pennsylvania income tax include:
Capital gains from the sale of a principal residence for those who satisfy ownership and use requirements Personal use of employer-owned property Child support Alimony Social security benefits, public and private pensions, and IRA distributions Worker’s compensation, unemployment benefits, and public assistance Sick pay Inheritances and gifts
If you receive any of these types of income, you will not need to pay tax on them.
What Tax Deductions Are There in Pennsylvania?
Pennsylvania doesn’t allow many of the deductions that are permitted at the federal level, including:
Medical and dental expensesCharitable donationsCasualty or theft lossesStudent loan interestAlimonyIRA deductionSelf-employment taxes
There are four deductions allowed for Pennsylvania personal income tax. These are for contributions to a:
Medical Savings AccountHealth Savings Account529 Qualified Tuition Program529A Pennsylvania ABLE Savings Account Program
Medical and Health Savings Accounts
Medical savings and health savings account contributions are deductible to the extent that they’re deductible for federal tax purposes on the return you’d file with the IRS. Your Pennsylvania deduction would be the same as your federal deduction. Your federal deduction can be found on line 13 of IRS Schedule 1, which accompanies your Form 1040. You cannot claim this deduction in Pennsylvania if you can’t also claim it on your federal tax return.
529 College Savings Plans
Any 529 college savings account contributions made during the year can be deducted up to $16,000 per beneficiary ($32,000 if married filing jointly) in 2022. For 2023, allowable deductions are $17,000 for single filers and $34,000 for joint filers. This deduction applies to both Pennsylvania 529 plans and out-of-state 529 plans.
Pennsylvania ABLE Savings Account Programs
Any contributions you make to an ABLE account are also tax deductible in Pennsylvania. The state allows a yearly deduction of up to $16,000 per beneficiary in 2022. This applies only to Pennsylvania ABLE accounts, not out-of-state accounts.
What Tax Credits Are Available In Pennsylvania?
Credits reduce your tax debt directly, just as though you had made a payment. Pennsylvania offers two primary credits to individuals.
The Resident Credit
The Resident Credit is a credit for gross or net income taxes paid to other states or foreign countries by Pennsylvania residents. To claim it, you will need to file PA-40 Schedule G-L. This credit is the lower of:
The actual amount of tax paid to the other state or country.The Pennsylvania personal income tax rate multiplied by the amount of income subject to Pennsylvania income tax but sourceable to the other state or country.
Tax Forgiveness
The Tax Forgiveness Credit is extended to lower-income taxpayers for whom paying income tax would mean they cannot pay for basic necessities. Taxpayers who qualify can be single, married, and/or have dependents. Your income from all sources, including tax-exempt alimony, child support, and Social Security, cannot exceed certain income limits. Income limits for this credit depend on the number of dependents you have. You can receive a credit of anywhere from 10% to 100% of your tax liability, depending on the number of your dependents and your income. You will need to file PA-40 Schedule SP to receive tax forgiveness.
Filing Your Return
You must file a Pennsylvania return if you received income that generates $1 or more in tax. You must also file if you sustained a loss from any transaction as an individual, sole proprietor, partner in a partnership, or Pennsylvania S-corporation shareholder. This rule applies to Pennsylvania residents, nonresidents, or part-year residents. You can file your taxes electronically through the myPath online portal, or by using independent tax software such as TurboTax. If you want to file a paper return, forms are available on the Pennsylvania Department of Revenue’s website. You can also call 1-888-PATAXES to order the forms and have them mailed or faxed to you. Returns and payment must normally be postmarked on or before April 15th.
