What Is Pennsylvania State Income Tax Rate?

Pennsylvania levies an income tax on its residents and those earning income within its borders. A distinguishing feature of Pennsylvania’s approach to income taxation is its application of a flat tax rate. This means that, unlike progressive tax systems where higher earners face higher tax percentages, all taxable income is subject to the same percentage rate, regardless of the income amount.

Pennsylvania’s Flat State Income Tax Rate

Pennsylvania maintains a flat individual income tax rate. For the current tax year, the Pennsylvania state income tax rate stands at 3.07 percent. This rate applies uniformly to all taxable income. This flat rate system contrasts with progressive income tax structures common at the federal level and in many other states. In a progressive system, different income brackets are taxed at increasing rates, leading to a higher overall tax burden for higher earners. Pennsylvania’s single, fixed rate aims to provide a straightforward and consistent tax application across all income levels within the state.

Defining Taxable and Exempt Income

The state identifies eight specific classes of income subject to its personal income tax. These categories include compensation, such as wages and salaries, and interest earnings from various sources. Dividends received from investments are also considered taxable income. Net profits derived from the operation of a business, profession, or farm are another taxable class, as are net gains from the disposition of property, which includes profits from selling assets.

Income generated from rents, royalties, patents, and copyrights is taxable, along with income distributed from estates or trusts. Cash prizes from gambling and lottery winnings fall under taxable income. Conversely, various income types are exempt from Pennsylvania state income tax. Social Security benefits and unemployment compensation are not taxed by the state.

Most payments from retirement accounts, such as 401(k)s and IRAs, along with pension income for individuals aged 60 or older, are generally exempt. Capital gains realized from the sale of a principal residence are also exempt, and military pay earned by residents for federal active-duty service outside Pennsylvania is typically not taxable.

Pennsylvania State Tax Credits

Certain tax credits are available to reduce an individual’s final tax liability. One such credit is the Tax Forgiveness Credit, which provides relief to lower-income individuals and families. Eligibility for this credit depends on factors like income level and family size, and qualifying taxpayers must complete and submit Pennsylvania Schedule SP with their state income tax return.

Another significant credit is the Educational Improvement Tax Credit (EITC). These programs provide tax credits to individuals and businesses that contribute to approved educational organizations. A credit of 75 percent is generally available for such contributions, which can increase to 90 percent if a two-year commitment is made.

Pennsylvania residents who earn income in other states may also claim a Resident Credit for Taxes Paid to Other States. This credit helps prevent double taxation on income that is subject to both Pennsylvania’s personal income tax and an income or wage tax in another state. The allowable credit is typically the lesser of the tax paid to the other state or the Pennsylvania tax due on the same income. A Child and Dependent Care Tax Credit (CDCTC) is available, offering a credit equal to 100 percent of the federal CDCTC for eligible taxpayers.

Local Income Taxes

In addition to the state income tax, many Pennsylvania residents are also subject to local income taxes. These local taxes consist of an Earned Income Tax (EIT) and, in some areas, a Local Services Tax (LST). The EIT is typically levied by municipalities and/or school districts on wages and net profits.

The rates for local EIT can vary significantly depending on where an individual lives and works, ranging from about 0.5 percent to nearly 4 percent in some larger cities. The applicable EIT rate is generally the higher of the rate in the taxpayer’s municipality of residence or their work location. Taxpayers can determine their specific local tax rates by consulting their local tax collector, their employer, or by using Political Subdivision (PSD) codes, which uniquely identify each municipality.

The Local Services Tax (LST) is a flat annual fee, often around $52, imposed on individuals working within certain local jurisdictions. Unlike the EIT, the LST is typically applied based on the work location.

Filing and Payment Obligations

Individuals who receive taxable income in Pennsylvania are required to file a Pennsylvania Personal Income Tax Return, Form PA-40. This filing obligation applies to residents, part-year residents, and non-residents who earn Pennsylvania-source income. The annual filing deadline for the PA-40 is typically April 15th, or the next business day if April 15th falls on a weekend or holiday.

Payments can be made electronically through the Pennsylvania Department of Revenue’s myPATH system, including ACH debit from a bank account or credit/debit card payments. For payments of $15,000 or more, electronic payment is required. Payments can also be submitted via mail.

Estimated tax payments are required for individuals whose income is not subject to sufficient withholding and who expect to owe a certain amount in tax. These estimated taxes are typically paid in quarterly installments throughout the year.