Pennsylvania has a state income tax of 3.07 percent on wages, interest, and dividends

Pennsylvania charges a flat 3.07 percent state income tax on most types of income. This rate applies to wages from employment, interest earned on savings accounts and bonds, and dividends from stocks. Unlike the federal income tax, which uses tax brackets that increase with your income, Pennsylvania uses the same percentage for everyone—whether you earn $20,000 or $200,000 per year.

The state also taxes other income sources at different rates. Net profits from self-employment and business income are taxed at 3.07 percent. Capital gains (profit from selling stocks or real estate) are taxed at 3.07 percent as well. Pennsylvania does not tax retirement income like Social Security benefits or distributions from traditional IRAs and 401(k)s, which is one reason some retirees move to the state.

Your employer typically withholds Pennsylvania income tax from your paycheck automatically, similar to federal withholding. If you are self-employed or have income without withholding, you may need to make quarterly estimated tax payments to the state.

Key Takeaways

  • Pennsylvania's state income tax rate is a flat 3.07 percent on wages, interest, dividends, and business income.
  • Retirement income including Social Security, traditional IRA distributions, and 401(k) withdrawals are not subject to Pennsylvania state income tax.
  • Your employer withholds Pennsylvania income tax from your paycheck, and you report it annually on your state tax return.
  • Pennsylvania also has a sales tax of 6 percent, plus local taxes that vary by county and municipality.

How Pennsylvania income tax is withheld from your paycheck

When you start a job in Pennsylvania, you complete a PA-W4 form (Pennsylvania Employee Withholding Allowance Certificate). This form tells your employer how much state income tax to deduct from each paycheck. The form asks for basic information like your filing status and the number of dependents you claim.

Your employer sends the withheld tax to the Pennsylvania Department of Revenue on your behalf. At the end of the year, you receive a PA-1099-R (for retirement income) or your W-2 will show how much Pennsylvania income tax was withheld. You then file a state tax return to reconcile what was withheld against what you actually owe.

If too much tax was withheld, you receive a refund. If too little was withheld, you owe the difference when you file. You can adjust your withholding at any time by submitting a new PA-W4 to your employer—for example, if you get a second job or if your family situation changes.

Pennsylvania sales tax and other state taxes

In addition to income tax, Pennsylvania charges a 6 percent sales tax on most goods and some services. This is the state portion only; many counties and cities add their own local sales taxes on top, bringing the total to between 6 and 7 percent depending on where you shop.

Groceries, prescription medications, and medical equipment are exempt from Pennsylvania sales tax. Clothing is also exempt, though accessories like belts and hats may be taxed depending on how they are classified. Restaurant meals and prepared foods are taxable.

Pennsylvania also taxes gasoline, cigarettes, and alcohol at rates set by the state. These excise taxes are included in the price you pay at the pump or register. The state also charges a corporate net income tax of 5.25 percent on business profits and a gross receipts tax on certain utilities.

Filing your Pennsylvania state tax return

Most Pennsylvania residents file their state tax return using Form PA-40, the state's standard individual income tax return. You can file online through the Pennsylvania Department of Revenue website, by mail, or through tax software that supports Pennsylvania returns.

The important date to file is the same as the federal important date—typically April 15 of the following year. If you need more time, you can request an extension, which gives you until October 15 to file without penalty (though any taxes owed are still due by April 15).

You must file a Pennsylvania return if your income exceeds the filing threshold set by the state each year. Even if you do not owe tax, filing may be worth doing if you had taxes withheld, because you could receive a refund. Self-employed individuals and business owners have additional reporting requirements and may need to file Form PA-40 Schedule C to report business income.

Tax credits and deductions available in Pennsylvania

Pennsylvania offers several tax credits that reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is calculated based on your federal EITC. Pennsylvania's version is worth up to 20 percent of your federal credit.

The state also offers a Property Tax/Rent Rebate for older adults, people with disabilities, and widows or widowers with limited income. This program rebates a portion of property taxes paid or rent paid during the year. may be able to access depends on age, income, and whether you own or rent your home.

Pennsylvania does not allow a standard deduction like the federal government does. Instead, you claim a personal exemption of $3,200 per person (as of the most recent tax year, though this amount can change). You subtract this from your income before calculating the tax owed.

Who does not have to pay Pennsylvania income tax

Retirees who receive Social Security benefits pay no Pennsylvania state income tax on those benefits. The same applies to distributions from traditional IRAs, 401(k)s, and other may have access to retirement plans. This makes Pennsylvania attractive to people planning retirement, since a significant portion of retirement income is protected from state taxation.

However, wages from part-time work in retirement are still subject to the 3.07 percent tax. If you work as a consultant or have self-employment income in retirement, that income is taxable at the standard rate.

Non-residents who work in Pennsylvania but live in another state may owe tax to both states, depending on the other state's rules. Pennsylvania has reciprocal agreements with some neighboring states that prevent double taxation, but you should check with both states' tax agencies if this applies to you.

Frequently Asked Questions

Does Pennsylvania tax Social Security income?

No. Pennsylvania does not tax Social Security benefits, traditional IRA distributions, 401(k) withdrawals, or other may have access to retirement plan distributions. This is one of the few income sources completely exempt from state income tax.

What is the difference between Pennsylvania income tax and federal income tax?

Pennsylvania uses a flat 3.07 percent rate for all income levels, while federal tax uses brackets that increase with income. Pennsylvania also does not tax retirement income, while federal tax does. You file separate returns for each—a federal Form 1040 and a Pennsylvania Form PA-40.

Can I claim dependents on my Pennsylvania tax return?

Pennsylvania allows a personal exemption of $3,200 per person, but does not use a dependent exemption like the federal return does. The exemption applies to yourself, your spouse if filing jointly, and each dependent you claim on your federal return.

What happens if I move out of Pennsylvania during the year?

You owe Pennsylvania income tax only on income earned while you were a resident. When you move, notify your employer of the date so they can adjust your withholding. You may need to file a part-year resident return showing income for the months you lived in the state.

Is Pennsylvania income tax deductible on my federal return?

Yes, but only if you itemize deductions on your federal return. State and local income taxes (SALT) can be deducted up to $10,000 per year on your federal Form 1040. Most people claim the standard deduction instead, which is higher for most taxpayers.