How Much Are Taxes in PA? A Breakdown of Tax Rates

Pennsylvania’s tax system is a multi-layered structure that includes levies at both the state and local levels. The total tax an individual pays is a cumulative result of their income, the specific municipality and school district they reside in, and their spending habits on goods and services.

Understanding one’s tax obligations requires looking beyond a single statewide number. The combination of state-level taxes with a highly localized system means that the financial impact can differ significantly from one community to another.

Pennsylvania State Income Tax

Pennsylvania imposes a personal income tax at a flat rate of 3.07 percent. This single rate applies to all taxpayers regardless of their income level, a system that differs from the progressive tax brackets used by the federal government and many other states. The tax is calculated on a taxpayer’s net taxable income, which is determined by starting with gross income and making specific adjustments.

The state’s tax code specifies eight classes of income subject to taxation:

• Compensation
• Interest
• Dividends
• Net profits from a business or profession
• Net gains from the disposition of property
• Income from rents and royalties
• Income from estates or trusts
• Gambling or lottery winnings

A loss in one class of income cannot be used to offset a gain in another class.

Many income sources are not taxed. Social Security benefits and distributions from most retirement accounts, such as 401(k)s and IRAs, are fully exempt from state tax for those who meet the age requirements. This exemption is a consideration for financial planning.

Local Income and Services Taxes

Beyond the state-level income tax, most residents are also subject to local income taxes. The most common of these is the Earned Income Tax (EIT), a tax on earned income such as wages, salaries, and net profits from a business. The EIT rate is a combination of a rate set by the local municipality and another rate set by the corresponding school district.

In addition to the EIT, many municipalities levy a Local Services Tax (LST). The LST is a flat-rate occupational privilege tax of $52 per year, imposed on individuals who work within the boundaries of the taxing jurisdiction. This tax is usually withheld by employers on a pro-rata basis from an employee’s paycheck throughout the year. Exemptions are available, most notably for individuals who earn less than $12,000 in a calendar year from all sources within the municipality.

Finding the precise EIT rate for a specific address is a necessary step for residents and employers. The Pennsylvania Department of Community and Economic Development (DCED) maintains an online tax register and finder tool. By entering a street address, users can identify their resident EIT rate, the non-resident EIT rate, the correct Political Subdivision (PSD) code for reporting, and contact information for the tax collector.

Sales and Use Tax

Pennsylvania levies a statewide sales tax of 6 percent on the retail sale, consumption, or use of tangible personal property and certain services. Two of the state’s most populous areas add a local sales tax: Allegheny County imposes an additional 1 percent, and Philadelphia adds 2 percent, resulting in total sales tax rates of 7 percent and 8 percent, respectively.

While a broad range of goods and services are taxed, there are numerous exemptions, including:

• Most food items for home consumption
• The majority of clothing and footwear, with exceptions for formal apparel and fur
• Prescription medications
• Residential heating fuels like oil and gas
• Textbooks
• Computer services

Complementing the sales tax is the state’s use tax, set at the same rate. The use tax applies to taxable items purchased from out-of-state vendors for use in Pennsylvania when no sales tax was collected at the point of sale. This ensures that purchases from remote sellers are taxed at the same rate as items bought locally. Individuals must remit the use tax to the Department of Revenue, often through their annual state income tax filing.

Property Taxes

Property taxes in Pennsylvania are administered entirely at the local level, with no statewide property tax. A property owner’s total tax bill is the sum of levies from their county, local municipality, and school district. Each of these three taxing bodies establishes its own millage rate annually, and the school district tax often constitutes the largest portion of the total bill.

A millage rate, or mill, is the rate of tax applied to the assessed value of a property, where one mill is equivalent to one dollar of tax for every $1,000 of assessed value. For example, a property with an assessed value of $100,000 in a municipality with a 5-mill tax rate would owe $500 in property taxes to that entity.

The calculation of the tax depends on a property’s assessed value, which is determined by the county assessment office. This assessed value is not always the same as the property’s market value; it is often a fraction of it based on a predetermined ratio or a past assessment. To help offset this tax, the state offers the Property Tax/Rent Rebate Program for eligible seniors and individuals with disabilities.

Pennsylvania Inheritance Tax

Pennsylvania is one of a few states with an inheritance tax, which is distinct from an estate tax. The tax is paid by the beneficiaries who receive the inherited property, not by the decedent’s estate itself. The tax rate is determined by the relationship of the heir to the deceased. The personal representative of the estate is responsible for filing the inheritance tax return, Form REV-1500, and paying the tax, though beneficiaries are ultimately liable.

The inheritance tax rates are defined by beneficiary class:

• 0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger.
• 4.5% on transfers to direct descendants, including children and grandchildren.
• 12% on transfers to siblings.
• 15% on transfers to all other heirs, such as nieces, nephews, or unrelated individuals.

Charitable organizations and certain government entities are exempt from this tax. The return is due within nine months of the date of death, and a 5 percent discount on the tax owed is available if payment is made within three months of death.