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).” (Pennsylvania Personal Income Tax Guide, Deductions and Credits)
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?
PA Tax Forgiveness is Pennsylvania’s primary low‑income tax relief program. It allows eligible taxpayers to reduce or eliminate their PA personal income tax liability — and in many cases receive a full refund of all PA tax withheld — by filing PA Schedule SP with their PA‑40 return.
This program is based on eligibility income, family size, and marital status, not taxable income. Nearly one in five Pennsylvania households qualifies.
The main purpose of Pennsylvania tax forgiveness is to:
Eliminates PA tax for the lowest‑income households
Reduces PA tax for modest‑income households
Refunds PA tax withheld for eligible workers
Helps retirees, students, single parents, and low‑income families who often don’t realize they qualify
You can claim PA tax forgiveness by completing PA Schedule SP and filing the 'Form PA‑40.'
Who Qualifies for PA tax forgiveness?
To qualify, a taxpayer must:
Be subject to PA personal income tax
Not be a dependent of another person (with limited exceptions)
Have eligibility income below PA’s threshold for their family size
Not be a ward of a prison, hospital, or residential school for half the year or more
What Counts as Eligibility Income?
Eligibility income is broader than taxable income. It includes all taxable income plus many non‑taxable items, such as:
Social Security benefits
Retirement plan distributions (401(k), IRA, pension)
Alimony
Gifts and inheritances
Nontaxable interest (e.g., U.S. savings bonds)
Child support (counted for the child’s eligibility income)
Military pay not reported on PA‑40
Scholarships, stipends, fellowships
Personal support payments from people outside the household
This is why two taxpayers with identical PA taxable income may have very different Tax Forgiveness outcomes.
Income That Does Not Count Toward Eligibility Income
Certain income is excluded from eligibility income calculations, including:
Social Security
Unemployment compensation
Pension payments (qualified retirement income)
How Much Tax Is Forgiven?
PA uses a sliding scale based on eligibility income and family size:
100% forgiveness for the lowest‑income households
Forgiveness decreases 10% for every $250 increase in eligibility income
Married couples must use joint eligibility income, even if filing separately
Examples (from PA Department of Revenue):
Family of four (two parents, two children): up to $34,250 qualifies for Tax Forgiveness
Single parent with two children: up to $27,750 qualifies
Single taxpayer with $6,500 eligibility income: 100% forgiveness
Married couple with $13,000 eligibility income: 100% forgiveness
Why Many Eligible People Miss Out on Pennsylvania Tax Forgiveness
Many eligible taxpayers miss out on tax forgiveness by simply not filing a PA‑40
Many assume “eligibility income” = “taxable income” (it does not)
Retirees often skip filing because their income is nontaxable — but they may still qualify for refunds
Students and single parents frequently qualify but don’t know it
How to Claim PA Tax Forgiveness
File a PA‑40
Complete PA Schedule SP
Report all taxable and non‑taxable eligibility income
Use the PA eligibility tables to determine forgiveness percentage
Receive refund of PA tax withheld (if applicable)
Summary
PA Tax Forgiveness is Pennsylvania's low‑income tax credit that can refund part or all of a taxpayer's PA tax.
It is based on eligibility income, family size, and marital status, and is claimed using Schedule SP.
Many households in Pennsylvania, including retirees, students, and low‑income workers, qualify for, but never claim, PA tax forgiveness.
6. What is Pennsylvania Tax Forgiveness?
PA Tax Forgiveness qualification is determined by four factors: (1) eligibility income, (2) family size, (3) marital status, and (4) dependency status.
The rules come directly from the Pennsylvania Department of Revenue’s Tax Forgiveness guidance and Schedule SP instructions.
Below is a complete, citation‑supported explanation tailored for your tax practice.
Who Qualifies for PA Tax Forgiveness (Schedule SP)
1. You must be subject to PA Personal Income Tax
Any filer who is required to file a PA‑40 return may qualify.
This includes:
Residents
Part‑year residents
Nonresidents with PA‑taxable income
2. You must NOT be a dependent of another taxpayer
PA uses federal dependency rules (IRC §151).
If someone else can claim you as a dependent, you generally cannot claim Tax Forgiveness — with limited exceptions for students noted in Schedule SP instructions.
3. Your “Eligibility Income” must be below PA’s threshold
This is the most important rule.
Eligibility income ≠ taxable income.
It includes:
All PA‑taxable income
PLUS non‑taxable income such as:
Social Security
Qualified retirement distributions
Alimony
Gifts and inheritances
Nontaxable interest (e.g., U.S. savings bonds)
Scholarships, stipends, fellowships
Child support (counted for the child, not the parent)
Military pay not reported on PA‑40
Personal support payments
Income NOT counted toward eligibility income includes:
Social Security
Unemployment compensation
Qualified pension income
4. You must not be institutionalized for half the year
You cannot qualify if you were:
A ward of a prison
A patient in a federal or state hospital
A student in a federal/state/local residential school
for ½ the year or more.
Income Limits (Examples from PA Department of Revenue)
PA publishes annual income tables. Examples:
Family of four (two parents, two children): qualifies up to $34,250
Single parent with two children: qualifies up to $27,750
Additional thresholds (ConsumerAffairs summary of PA DOR tables):
Single filer: 100% forgiveness up to $6,500, partial up to $8,750
Married couple: 100% forgiveness up to $13,000, partial up to $17,500
Who Typically Qualifies (Based on PA DOR and tax education sources)
Retirees with Social Security + small pensions
Students with low earnings
Single parents
Workers with low wages and PA withholding
Households receiving non‑taxable support payments
Nearly one in five Pennsylvania households qualifies.
Summary — You Qualify for PA Tax Forgiveness If:
You file a PA‑40 and complete Schedule SP
You are not someone else’s dependent
Your eligibility income is below PA’s threshold for your family size
You were not institutionalized for half the year
Your household meets the income limits (e.g., $34,250 for a family of four)
7. Who Qualifies for PA Tax Forgiveness?
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.
Explore Services
Contact Us
Forms and Policies
Explore Website