Pennsylvania Individual Income Tax

Posted on Feb 13, 2014 | Comments Off

Pennsylvania Individual Income Tax

Pennsylvania Individual Income Taxes 2013 – 2014

Individuals in Pennsylvania pay a flat tax of 3.07 percent.  This means that in Pennsylvania everyone pays 3.07 percent, no matter how much income they make.  However, if your income is low enough, the state will forgive your tax debt, bringing your tax bill to zero.

Pennsylvania does not allow for a standard deduction or a deduction for personal exemptions (dependents).  Therefore, the allowed deductions, tax credits, and exclusions from income become all the more important.

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What Income Is Taxable?

Pennsylvania assesses tax on the eight classes of income:

Compensation

Interest

Dividends

Net profits from a business, profession, or farm

Net gains from the dispositions of property

Net gains from rents, royalties, patents, and copyrights

Income from estates or trusts

Gambling and lottery winnings other than Pennsylvania Lottery winnings

What Income Is Exempt?

Common income items 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

For full details on all exempt income items see the instructions to Form PA-40.

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What Can I Deduct?

Pennsylvania does not allow many of the deductions that are allowed on your Federal tax return, limiting your deductions to the following three:

Employment related expenses that were not reimbursed by your employer are allowed to be deducted from your gross compensation.  Pennsylvania requires the costs to be ordinary, necessary, reasonable, and directly related to your occupation.  You are allowed to deduct ALL of these costs as Pennsylvania does not impose the Federal limits on this deduction.

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 Medical savings and health savings account contributions are deductible to the extent they are deductible for Federal (IRS) tax purposes.  If you received a deduction for these contributions on your Federal return, your Pennsylvania deduction would be the same as your Federal deduction.  Your Federal deduction can be found on Line 25 of your Federal Form 1040.

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529 college savings account contributions made during the tax year can be deducted up to the limit of $13,000 per beneficiary.  This deduction applies to both Pennsylvania 529 plans and out-of-state 529 plans.

What Tax Credits Are Available?

Tax credits reduce your tax debt directly, similar to a payment.  Pennsylvania offers these credits to individuals:

Resident Credit is a credit for gross or net income taxes paid to other states or foreign countries by Pennsylvania residents

Tax Forgiveness Credit is a credit extended to taxpayers who are single, married, and/or have dependents and whose income from all sources (including tax exempt items like alimony, child support, social security, etc.) does not exceed certain income limits.  Depending on your number of dependents and income you can receive a credit of anywhere from 10 percent to 100 percent your tax liability.

E File State Taxes

 

It’s has become much easier to prepare online Pennsylvania state tax return 2013 – 2014 using tax software and online tools. You can also learn some tax preparation and e-filing tips from the website and make your task easier. Compared to paper filing, income tax filing is easier, faster, and safer. The tax prepare software facilitates you do your taxes in step-by-step manner. The program will ask you certain tax related questions and you will have to answer them accurately. You’ll be provided with tax forms in which you have to arrange your information asked by the software.