Pennsylvania State Taxes
Table of Contents
Pennsylvania Income Tax
If you earned income throughout the year, you’re responsible for filing a federal income tax return. As a Pennsylvania resident, you’re also responsible for filing a tax return with the state to claim this income. The state has a 3.07% flat rate tax. This means the taxable income you earn is taxed at this rate, no matter how much you earn.
The Pennsylvania Department of Revenue (DOR) recognizes eight different classes of income, which you’re responsible for claiming when you file your tax return:
- Compensation you earn from an employer or other work you complete;
- Interest you earn on bank accounts or IRAs;
- Dividends you earn from investments;
- Profits you earn from businesses, farms, or other professions;
- Net gains you earn from properties you own or sell;
- Income you earn from copyrights, patents, rent, or royalties;
- Income you received from trusts or estates;
- Prizes or winnings from gambling or lottery wins.
While it may seem like any income you earned is taxable, there are several exemptions that you aren’t required to claim on your state tax return. Child support, alimony, and sick pay are excluded from taxable income. You’re also not required to claim IRA distributions, Social Security or unemployment benefits, public assistance, worker’s compensation, gifts, or inheritances.
Pennsylvania doesn’t provide residents with standard deductions or personal exemptions on state income taxes. However, there are specific types of tax credits, exclusions, or deductions that you may qualify to claim, including the following:
- Taxable compensation deductions: Reasonable expenses related to your profession, medical savings account contributions, IRC Section 529 tuition contributions, and health savings account (HSA) contributions.
- Tax credits: Income taxes you paid to another state and low-income families enrolled in the Tax Forgiveness program.
- Income tax exclusions: Payments made to the IRC Section 125 (cafeteria) plans for disability, hospitalization, sickness, or death, capital gains from the sale of a primary residence, and personal use of property owned by your employer.
Pennsylvania requires you to claim taxable income as a resident or as a nonresident who earned any type of eligible income in the state throughout the year. The due date to file your taxes is April 15.
Pennsylvania Sales Tax
When you purchase taxable goods or services in Pennsylvania, your transaction is subject to a 6% statewide sales tax. If your purchase is made in Allegheny County, an additional 1% sales tax is added and an extra 2% local sales tax is added to transactions that take place in Philadelphia.
This sales tax applies if you buy, use, rent, or consume tangible personal property, including digital goods, such as downloadable videos or music files. Services relating to these types of property are also taxable. However, there are several exemptions to the state sales tax, including the following:
- Food that still needs to be prepared;
- Most clothing;
- Candy or gum;
- Pharmaceutical drugs;
- Heating fuels used in residential homes (oil, gas, coal, electricity, and firewood);
- Computer services;
If your purchase is taxable, the seller adds the applicable sales tax to the total of your transaction. The seller then files a sales tax return with the state government and pays the taxes owed.
If you purchase taxable goods or services from an out-of-state vendor, you may owe a use tax on your transaction. This is common with online vendors or catalog orders. If the seller didn’t collect sales tax from you, you’re responsible for claiming a 6% use tax on taxable items or services you purchased.
Use tax is important for the Pennsylvania government because it provides funding for public services and government activities. If the DOR learns about purchasers who bought taxable goods or services but didn’t pay sales or use tax, it may pursue these consumers to collect the taxes, along with additional interest and penalty fees.
Pennsylvania Property Tax
If you own property in Pennsylvania, you’re responsible for paying property taxes to your local government. Each county assessor determines property values by analyzing current market value and specific characteristics. The county, school district, and municipality sets their own tax rates based on financial need and the total of all property values within the district.
Property tax bills are mailed to homeowners in the county. Your property taxes may vary each year and are dependent on the assessed value of your property and your county’s current tax rate. The median property taxes homeowners paid in Pennsylvania is $2,223 and the average property tax rate is 1.35%. These taxes are used to fund local schools, community improvement projects, and other government activities.
You may qualify for Pennsyvlania’s Property Tax/Rent Rebate Program, which provides eligible homeowners with a rebate on property taxes and renters with a rebate on rent paid. To qualify for a property tax rebate between $250 and $650, you must identify as one of the following:
- A resident 65 or older;
- A widow(er) 50 or older;
- A resident with disabilities 18 or older.
You must also prove that you earned $35,000 or less for the year and that you’ve already paid your property taxes in full. The rebate amount you qualify for is based on your income level.
Pennsylvania Inheritance Tax
If you inherit a loved one’s estate after they pass away, you’re responsible for paying Pennsylvania’s inheritance tax. The tax rate imposed on your inheritance depends on your relationship to the decedent. If you’re the surviving spouse or the parent of a child who was 21 or younger and passed away, you’re exempt from the inheritance tax.
The following heirs are responsible for corresponding inheritance tax rates:
- Direct heirs of the decedent: 4%;
- Siblings of the decedent: 12%;
- Other heirs: 15%.
If a nonprofit organization or charity is an heir, the Pennsylvania inheritance tax doesn’t apply. The inheritance tax must be paid within nine months of the date of death. As the federal estate tax law was phased out, the Pennsylvania estate tax was also repealed.
Other Taxes in Pennsylvania
- Cigarette tax: 13 cent excise tax on each cigarette or little cigar and $26 on each 10-pack carton.
- Malt beverage and liquor tax: Malt beverages are subject to a tax of $2.48 per barrel and an 18% tax is imposed on liquor.
- Medical marijuana tax: Growers and processors must pay a 5% excise tax on the sale of medical majiuana to dispensaries.
Filing Taxes in Pennsylvania
To file your Pennsylvania income taxes, you must complete Form PA-40. You can submit this form to the DOR along with your payment, if necessary. Alternatively, you may use the free online e-filing system, PAdirectfile, to electronically submit your tax return. Using this system, you can pay your taxes online and check the status of your return at any time.
After reviewing the Pennsylvania tax system, you’ll feel more confident calculating the taxes you owe. By understanding the tax regulations in the state, you can be sure you’re paying the proper taxes to support the state government.
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This post was updated February 24, 2020. It was originally published February 24, 2020.