What Is the PA State Income Tax Rate?

The Pennsylvania state income tax is a distinct levy imposed on individuals by the Commonwealth of Pennsylvania. This tax operates separately from the federal income tax collected by the U.S. government and any local earned income taxes imposed by municipalities or school districts.

The Pennsylvania State Income Tax Rate

Pennsylvania imposes a flat individual income tax rate of 3.07 percent. This rate is applied uniformly to all taxable income, regardless of the amount an individual earns. A flat tax system simplifies the calculation of tax liability since the same percentage is used for everyone. This structure contrasts with a progressive tax system, where different income brackets are taxed at incrementally higher rates. In a progressive system, higher earners pay a larger percentage of their income in taxes. Pennsylvania’s flat tax ensures that every dollar of taxable income is subject to the identical 3.07 percent rate.

Income Subject to Taxation

Pennsylvania law defines eight specific classes of income that are subject to the personal income tax, as outlined in 72 P.S. 7303.

Compensation includes wages, salaries, commissions, bonuses, fees, and tips received for services rendered. Net profits refer to income derived from operating a business, profession, or farm.

Interest income from various sources is generally taxable, as are dividends received from stocks and mutual funds. Net gains or income from the disposition of property covers profits from selling assets like real estate or investments.

Net gains or income from rents, royalties, patents, and copyrights are also subject to the tax. This includes earnings from rental properties or intellectual property. Income derived through estates or trusts is taxed when distributed to beneficiaries.

Finally, gambling and lottery winnings are taxable, with the exception of non-cash prizes from the Pennsylvania Lottery. All income falling into these eight classes is typically subject to the flat tax rate unless a specific exclusion applies.

Allowable Deductions and Credits

Deductions decrease the amount of income subject to tax, thereby lowering the overall taxable base. Credits, conversely, directly reduce the amount of tax owed, dollar for dollar.

Pennsylvania allows specific deductions, including contributions to Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Contributions to qualified Section 529 tuition programs and Section 529A ABLE Savings Account programs are also deductible. Unlike federal taxes, Pennsylvania does not permit a standard deduction or personal exemption, and most itemized deductions allowed federally are not applicable at the state level. However, unreimbursed employee business expenses can be a limited exception if reported on PA Schedule UE.

Regarding credits, the most common for individuals is the Tax Forgiveness Credit. This program provides relief to eligible lower-income taxpayers, potentially reducing their tax liability to zero. Eligibility for this credit depends on income and family size, with specific thresholds published annually by the Department of Revenue. Taxpayers must file PA Schedule SP with their annual return to claim this credit.

How the Tax Is Paid

The Pennsylvania state income tax is paid through several primary methods. For most employees, the tax is automatically withheld from their paychecks by their employer. Employers are responsible for remitting these withheld amounts to the state on a regular schedule, typically quarterly, monthly, or semi-monthly depending on the total withholding amount.

Individuals who receive income not subject to employer withholding, such as self-employed individuals or those with significant investment income, are generally required to make estimated tax payments. These payments are typically made in four equal installments throughout the year. The common due dates for these quarterly estimated tax payments are April 15, June 15, September 15, and January 15 of the following year.

All Pennsylvania residents and non-residents with Pennsylvania-source income must file an annual income tax return, Form PA-40. The annual filing deadline is typically April 15 of the year following the tax year. While an extension to file can be requested, it is important to remember that an extension grants more time to submit the return, not more time to pay any tax owed. Any tax due must still be paid by the April 15 deadline to avoid penalties.