Pennsylvania Tax Answer Center: Your Complete Guide to PA Taxes
About This Pennsylvania Tax Resource
At Bargeld Financial, we bring fiduciary level care to every Pennsylvania tax return we prepare. As a Registered Investment Adviser specializing in tax strategy, we help individuals, families, gig workers, landlords, and small businesses across all of Delaware County navigate Pennsylvania’s complex tax system with clarity and confidence. Whether you live in Media, Upper Darby, Lansdowne, Drexel Hill, Springfield, Ridley, Haverford, Havertown, Glen Mills, Ardmore, Aston, Brookhaven, Broomall, Chester, East Lansdowne, Radnor, Sharon Hill, Wayne, Yeadon, Darby, or any other town, township, or borough within Delaware County’s forty-nine municipalities, our mission remains the same: provide fiduciary level tax guidance at an affordable price and help Delaware County residents keep more of what they earn.
We built this Pennsylvania Tax Answer Center as a comprehensive, annually updated hub designed to answer every PA tax question in one place. Pennsylvania’s tax rules are notoriously confusing — especially when you factor in local Earned Income Tax (EIT), Political Subdivision (PSD) Codes, residency changes, borough specific filing requirements, and the unique challenges Delco taxpayers face every year. This resource exists to simplify all of Delco and PA tax issue. Every explanation is written in plain English, grounded in Pennsylvania tax law, and tailored to addressing the real-world issues our clients encounter.
Our commitment goes beyond tax preparation. Bargeld Financial is structured to deliver long term clarity, proactive planning, and trustworthy guidance for every stage of your financial life. By combining tax strategy with fiduciary level oversight, we ensure that your tax decisions support your broader financial goals — whether you’re a W 2 employee, a 1099 contractor, a landlord, an investor, or a small business owner. When Delaware County residents think about taxes, we want them to think Bargeld Financial.
This hub is updated every year to reflect changes in Pennsylvania tax law, local tax collection rules, and borough specific requirements across Delaware County. As PA tax regulations evolve, this page evolves with them — giving you a reliable, authoritative resource you can return to every tax season.
Think Delco Taxes… Think Bargeld Financial!
Pennsylvania Tax Questions Answered
Pennsylvania’s personal income tax rate is a flat 3.07%. This single rate applies to all taxable income, regardless of income level or filing status. Pennsylvania does not have a "progressive" income tax system, or a system with graduated income tax brackets, allowing for ever (so slightly) increasing tax rates based on taxable income. In keeping with the feature of a flat tax rate, Pennsylvania's tax system does not allow for a a 'standard deduction', or personal exemption (at the state level). .
Key Details of PA's Tax System:
Flat rate: 3.07% on taxable income for residents and nonresidents.
Applies to eight classes of income, including: wages, interest, dividends, business income, capital gains, rental income, estate/trust income, and gambling/lottery winnings.
No standard deduction or personal exemption, meaning most income is taxed without the reductions seen in federal tax rules.
Rate has been unchanged since 2004, making Pennsylvania one of the few states with a long‑standing flat income tax.
Local Earned Income Tax (Important for Delaware County)
Although the state rate is 3.07%, most municipalities—including those in Delaware County—add a local Earned Income Tax (EIT) ranging from 1% to 3%, depending on the borough or township. Philadelphia is an outlier with a 3.74% wage tax for Philadelphia City residents, and 3.43% for non-residents.
1. What is Pennsylvania’s personal income tax rate?
You must file a Pennsylvania PA‑40 tax return if you are a resident, part‑year resident, or nonresident who received PA‑taxable income above the filing threshold or had PA tax withheld. You must file a PA tax return even if no tax is owed on your PA-sourced income, or income earned while a full-year or part-year Pennsylvania resident.
1. General Rule: Who Must File
Pennsylvania requires every resident, part‑year resident, or nonresident to file a PA‑40 if they have income generating $1 or more in PA tax, even if no tax is due. Additionally, you must file if you received more than $33 of PA‑taxable gross income, even if no tax is due.
2. Residents
You must file a PA‑40 tax return if:
You are a PA resident (domiciled or statutory resident)
You earned any PA‑taxable income above the filing threshold
You want a refund of PA tax withheld (PA does not issue refunds automatically without a return)
Residents are taxed on all taxable income, regardless of where it is earned.
3. Part‑Year Residents. You must file if:
You lived in PA for part of the year
You earned PA‑source income during the period you lived outside PA
You earned any taxable income while living in PA
4. Nonresidents. You must file if:
You earned PA‑source income (wages earned in PA, PA rental property, PA business income, etc.)
You want a refund of PA tax withheld on PA‑source wages
Nonresidents are taxed only on PA‑source income.
5. Other Situations Requiring a PA Return
You must file a PA‑40 if:
You incurred a loss from a business, partnership, or S‑corp activity (PA requires reporting losses).
You owe PA use tax on out‑of‑state purchases.
You qualify for Tax Forgiveness (Schedule SP) — PA requires filing to verify eligibility.
You are a minor with taxable income above the threshold (PA does not exempt minors).
You are filing on behalf of a decedent who met filing requirements.
6. Filing Threshold Summary. PA’s rules create two overlapping thresholds:
You must file if income generates $1 or more in PA tax. This means you must file if PA‑taxable gross income exceeds $33.
7. Classes of Income That Trigger Filing
PA taxes eight classes of income, including:
Wages/compensation
Business income
Capital gains
Rental income
Dividends
Interest
Gambling/lottery winnings
Estate/trust income
If you received income in any of these categories, you likely must file.
8. Practical Rule of Thumb (Useful for Your Tax Practice)
A taxpayer must file a PA‑40 if any of the following apply:
They earned any wages in PA
They earned more than $33 of PA‑taxable income
They want a refund of PA withholding
They had PA‑source business, rental, or investment income
They owe use tax
They qualify for Tax Forgiveness
This is why PA is considered one of the strictest states regarding filing requirements.
2. Do I need to file a Pennsylvania tax return?
Pennsylvania taxes eight classes of income. These classes of income are as follows:
1. Compensation
Wages
Salaries
Tips
Commissions
Bonuses, and
Most employer‑provided benefits.
Pennsylvania's tax regime does not mirror federal rules for many exclusions. For example, 401(k) contributions are taxable in PA even though these contributions are excluded up to applicable limits federally.
2. Interest
Interest from bank accounts, bonds, loans, and similar instruments is taxable in Pennsylvania
Interest from U.S. government obligations is generally exempt.
3. Dividends
Corporate dividends,
mutual fund dividends, and
distributions treated as dividends
4. Net Profits from a Business, Profession, or Farm. This includes income from:
Sole proprietorships
Independent contractors
Farms
Professional practices
Losses within this class may offset other business income, but cannot offset income in other classes.
5. Net Gains from the Sale or Disposition of Property (Capital Gains)
Includes:
Sale of stocks, bonds, real estate
Sale of business assets
Capital gains from investments
PA does not allow federal-style capital loss carryovers or netting across classes.
6. Net Gains from Rents, Royalties, Patents, and Copyrights. This includes income from:
Rental properties
Royalty agreements
Intellectual property
Oil, gas, and mineral rights
7. Income from Estates or Trusts
Beneficiary income distributions that are taxable under PA rules.
8. Gambling and Lottery Winnings. Pennsylvania taxes the following items related to gambling:
Casino winnings
Sports betting
Online gambling
Cash prizes from the PA Lottery
PA does not tax non‑cash PA Lottery prizes.
Important Structural Rules
Pennsylvania’s tax system is unique because :
It allows no netting across classes. A loss in one class cannot offset income in another. For example: A $10,000 business loss cannot offset a $10,000 capital gain.
No Standard Deduction or Personal Exemption
PA taxes income from the first dollar of taxable income.
Flat Rate
All taxable income is taxed at 3.07%.
3. What income is taxable in Pennsylvania?
Pennsylvania excludes a wide range of income from state taxation. Below is a complete list of income NOT taxable for Pennsylvania Personal Income Tax (PA‑40), based directly on the Pennsylvania Department of Revenue and Pennsylvania Code.
1. Retirement & Social Security (Not Taxable)
Pennsylvania is one of the most retirement‑friendly states in the country.
Social Security benefits
Railroad Retirement benefits (Tier I & II)
Pensions and annuities paid after reaching retirement age (including 401(k), 403(b), IRA distributions that meet PA retirement eligibility)
Military pension benefits
Civil Service annuities
United Mine Workers pension
Key rule:
PA only taxes early retirement distributions. Once a taxpayer reaches retirement age or meets years‑of‑service requirements, distributions are fully exempt.
2. Government Benefits (Not Taxable)
Unemployment compensation
Public assistance / welfare benefits
Workers’ Compensation benefits (including Heart & Lung Act benefits)
Payments for occupational diseases under PA Workers’ Compensation and Occupational Disease Acts
Veterans’ benefits and payments to veterans’ families
3. Insurance, Injury, and Disability Payments (Not Taxable)
Payments for personal injuries (lawsuit settlements, damages, pain & suffering, emotional distress)
Sick pay and disability benefits paid by third‑party insurers (not employer sick leave)
Long‑term care insurance benefits (non‑refundable reserve plans)
Life insurance proceeds and settlements
4. Military Income (Not Taxable)
Active‑duty military pay earned outside Pennsylvania
Retired or retainer military pay under federal uniformed services rules
5. Family‑Related Income (Not Taxable)
Child support
Alimony (PA does not tax alimony received)
Inheritances, death benefits, and income in respect of a decedent (IRD)
6. Employer‑Provided Benefits (Not Taxable)
Employer‑paid group term life insurance premiums (no limit)
Meals and lodging furnished for employer convenience
Personal use of employer‑owned property (cars, equipment, services)
Employer‑provided parking
Employer‑provided professional services (e.g., legal, tax, counseling)
Foster care payments
7. Gifts, Awards, and Miscellaneous Exclusions
Gifts and awards from detached generosity (true gifts)
Damage awards for physical injury or sickness (including punitive damages related to physical injury)
Reimbursements for actual expenses (not income)
8. Tax‑Exempt Interest
Interest on Pennsylvania state and local government bonds
Interest on certain U.S. government obligations (statutorily exempt)
Important:
Interest from other states’ bonds is taxable in PA.
9. Income Not Included in Any of PA’s Eight Taxable Classes
According to Pennsylvania's 61 Pa. Code §121.10, “Only certain classes of income are subject to tax. Therefore, that income not included in any of the eight categories is exempt...”
This means if income does not fit into PA’s eight taxable classes, the income is, then, automatically non‑taxable.
4. What income is NOT taxable in Pennsylvania?
No — Pennsylvania does not allow itemized deductions.
The Commonwealth explicitly disallows the federal standard deduction and all federal itemized deductions, including mortgage interest, property taxes, charitable contributions, medical expenses, and miscellaneous itemized deductions.
Pennsylvania’s Rule on Itemized Deductions
The Pennsylvania Department of Revenue states:
“Disallowed deductions include the federal standard deduction and itemized deductions (with the limited exception for unreimbursed employee business expenses deducted from gross compensation).”
This means you cannot itemize on a PA‑40 return the way you can on a federal Form 1040.
What Pennsylvania Does Allow Instead
PA permits only a small set of state‑specific deductions, none of which resemble federal itemized deductions:
1. Unreimbursed Employee Business Expenses (PA Schedule UE)
These are the only expenses that function similarly to itemized deductions, but they apply only to W‑2 compensation and must be ordinary, necessary, reasonable, and directly related to employment.
Examples include tools, uniforms, professional dues, and work‑required travel.
2. Medical Savings Account (MSA) Contributions
Deductible if federally eligible.
3. Health Savings Account (HSA) Contributions
Deductible up to federal limits.
4. 529 College Savings Plan Contributions
Deductible up to the federal gift tax exclusion per beneficiary.
PA allows deductions for any state’s 529 plan.
5. Pennsylvania ABLE (529A) Contributions
Deductible up to the federal gift tax exclusion.
Common Federal Deductions NOT Allowed in PA
Pennsylvania disallows all of the following:
Standard deduction
Mortgage interest
Real estate taxes
Charitable contributions
Medical/dental expenses
Casualty/theft losses
Miscellaneous itemized deductions
Student loan interest
Self‑employed health insurance
Moving expenses
5. Does Pennsylvania allow itemized deductions?
At Bargeld Financial, we bring fiduciary level care to every Pennsylvania tax return we prepare. As a Registered Investment Adviser specializing in tax strategy, we help individuals, families, gig workers, landlords, and small businesses across all of Delaware County navigate Pennsylvania’s complex tax system with clarity and confidence. Whether you live in Media, Upper Darby, Lansdowne, Drexel Hill, Springfield, Ridley, Haverford, Havertown, Glen Mills, Ardmore, Aston, Brookhaven, Broomall, Chester, East Lansdowne, Radnor, Sharon Hill, Wayne, Yeadon, Darby, or any other town, township, or borough within Delaware County’s forty-nine municipalities, our mission remains the same: provide fiduciary level tax guidance at an affordable price and help Delaware County residents keep more of what they earn.
We built this Pennsylvania Tax Answer Center as a comprehensive, annually updated hub designed to answer every PA tax question in one place. Pennsylvania’s tax rules are notoriously confusing — especially when you factor in local Earned Income Tax (EIT), Political Subdivision (PSD) Codes, residency changes, borough specific filing requirements, and the unique challenges Delco taxpayers face every year. This resource exists to simplify all of Delco and PA tax issue. Every explanation is written in plain English, grounded in Pennsylvania tax law, and tailored to addressing the real-world issues our clients encounter.
Our commitment goes beyond tax preparation. Bargeld Financial is structured to deliver long term clarity, proactive planning, and trustworthy guidance for every stage of your financial life. By combining tax strategy with fiduciary level oversight, we ensure that your tax decisions support your broader financial goals — whether you’re a W 2 employee, a 1099 contractor, a landlord, an investor, or a small business owner. When Delaware County residents think about taxes, we want them to think Bargeld Financial.
This hub is updated every year to reflect changes in Pennsylvania tax law, local tax collection rules, and borough specific requirements across Delaware County. As PA tax regulations evolve, this page evolves with them — giving you a reliable, authoritative resource you can return to every tax season.
Think Delco Taxes… Think Bargeld Financial!
Bargeld Financial is a Media, PA-based financial advisor providing investment management, retirement planning, tax preparation, and wealth management services for individuals and businesses throughout Delaware County.
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