There is only one state in the U.S. that can take credit for Hershey’s Chocolate, Heinz Ketchup, and Punxsutawney Phil, as well as be proclaimed as the “birthplace of a mighty nation”: That state is Pennsylvania. From the Steel City across the Dutch plains to the City of Brotherly Love, Pennsylvania simultaneously preserves old traditions and embraces new technologies.
Major documents such as The Declaration of Independence, The Constitution of the United States, and The Gettysburg Address were all written in Pennsylvania. The state is a leader in education and technology, while also protecting and maintaining the simple, traditional lifestyle of the Amish (in Lancaster County).
Pennsylvania is the sixth most populated state in country, with 12.5 million residents living across 67 counties. State and local governments enforce taxes on individuals and businesses, and the resulting revenue funds many public services.
The following article provides general information about Pennsylvania’s tax structure, as well as helpful facts and tips on filing your tax returns. Keep in mind that it is important to remain educated about taxes because they will always affect you.
As the economy evolves, the tax system becomes increasingly complex and policymakers are faced with even more challenges. One thing is certain though: Pennsylvania is a truly diverse and unique state. After all, where else can you order a Yuengling and a perfect cheesesteak?
TABLE OF CONTENTS
General Information About Pennsylvania Tax Laws
- • Personal Income Tax
- • Sales and Use Tax
- • Corporate Tax
- • Property Tax
- • Other Taxes
Notable Changes In Policy/Legislation
Information About Filing Your Pennsylvania Taxes
Tax Tips & Helpful Facts
GENERAL INFORMATION ABOUT PENNSYLVANIA TAX LAWS
The State of Pennsylvania imposes several major taxes such as the Personal Income Tax, Sales and Use Tax, and Corporate Tax. Local taxes, such as Property Tax, are enforced by counties, municipalities, and school districts.
Personal Income Tax
Pennsylvania’s Personal Income Tax is a flat rate of 3.07% for any individual who earns over $33 of taxable income.
The Pennsylvania Department of Revenue divides income into eight classes:
- 1. Gross Compensation/Wages
- 2. Interest
- 3. Dividends
- 4. Net income or loss from the operation of a business, profession, or farm
- 5. Net gain or loss from the sale or dispositions of property
- 6. Net income or loss from rents, royalties, patents, and copyrights
- 7. Net income or loss from estates or trusts
- 8. Gambling and lottery winnings other than Pennsylvania State Lottery winnings
Losses and/or gains cannot be carried from year to year, and changes in one class of income will not necessarily affect another class of income. There are also no standard deductions or personal exemptions. However, certain other credits, deductions, and exclusions may help reduce an individual’s tax liability.
The Pennsylvania Department of Revenue collects Personal Income Taxes in three ways:
- 1. Estimated and final payments from individuals
- 2. Employer withholding
- 3. Estimated withholding from nonresident partners or shareholders by partnerships and S corporations
Pennsylvania localities (counties, municipalities, and school districts) may impose their own income tax in addition to the State income tax. This is called the Earned Income Tax (or Wage Tax) and applies only to earned income. There is a 1% limit for these taxes, except in Home Rule municipalities (like Philadelphia, Pittsburgh, and Scranton), which do not have to comply with a minimum tax rate. To search for rates, visit the following website:
Pennsylvania Personal Income Tax returns are due by midnight on April 15th. Penalties and late fees are enforced for late returns, though a six-month Extension of Time to File (Form REV-276) may be granted. This option is not an extension of time for payment; it only covers filing, so the extension application must be submitted with any tax that is due. Form REV-276 should be filed as early as possible so the Department of Revenue can process it before the original due date of April 15th.
- Form REV-276 (Application for Extension of Time to File)
REV-276 Forms can be mailed to the following address:
PA Department of Revenue
Bureau of Individual Taxes
PO Box 280504
Harrisburg, PA 17128-0504
The State of Pennsylvania also offers a Tax Forgiveness Program which can reduce tax liability. It is based on income and family size, and about one out of every four households qualifies for it. Taxpayers who may receive 100% Tax Forgiveness include:
- • A single taxpayer with eligibility income of no more than $6,500
- • Married taxpayers with eligibility income of no more than $13,000
- • A single taxpayer with a child and eligibility income of no more than $16,000
- • A couple with two children and eligibility income of no more than $32,000
Eligibility income increases by $9,500 with each additional dependent child. Tax Forgiveness can also be applied to low-income retired individuals who have no PA tax withheld. To apply for the Tax Forgiveness Program, file your income tax return and include PA Schedule SP. For more details about this program, visit the Department of Revenue’s Tax Forgiveness webpage:
In June 2009, Pennsylvania Governor Edward G. Rendell proposed raising the Personal Income Tax rate from 3.07% to 3.57% to raise revenue for the state’s budget gap (which is predicted to reach $3.25 billion). He argued that Pennsylvania, which currently has the nation’s second lowest income tax rate, would still have the fourth lowest rate after the proposed change. While some believe that this increase is the best solution to the budget deficit, others say that it is the worst time to raise taxes for working individuals.
Sales and Use Tax
Pennsylvania has a 6% state sales tax rate imposed on the sale, consumption, rental, or use of taxable goods and services. The counties of Philadelphia and Allegheny impose an additional 1% local sales tax for taxable goods/services originating from those localities.
Taxable items include computers, appliances, sports equipment, office equipment, books, furniture, and maintenance services. Major items that are exempt from sales tax include most food (purchased from a grocery store), most clothing apparel, prescription medications, textbooks, sales for resale, and residential heating fuels (e.g., oil, gas, and electricity).
The Use Tax has the same rate as the Sales Tax (6% state rate, plus 1% local tax if located in Philadelphia or Allegheny County). It applies to the same items that are subject to the Sales Tax but were not charged the appropriate tax amount. The Use Tax is considered a personal responsibility of the taxpayer, and it is paid directly to the PA Department of Revenue. In general, the Use Tax affects purchases made by the Internet or through telephone and mail-order catalogs.
Individuals filing a Use Tax Return can use Form PA-1.
Businesses that are registered with a PA Sales Tax License must file their Sales and Use Taxes electronically using one of the following methods: e-TIDES, TeleFile, or Third Party Vendors.
Businesses that need to register with Pennsylvania can do so at the following website:
Tax information for retailers, as well as lists of taxable and nontaxable items, can be found at the following website:
It should also be noted that the Sales Tax due on purchases of used vehicles is based on the fair market value of the vehicle, not the purchase price. In 2001, the Pennsylvania Department of Revenue created the Motor Vehicle Understated Value Program to address situations where buyers/sellers are purposefully understating the purchase price of a vehicle to lower the sales tax owed. More information on this program can be found at the following link:
