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Updated on Friday, July 16, 2021
Pennsylvania, also known as the Keystone State, lands toward the top of the list when it comes to states paying the most taxes in 2021, according to tax policy nonprofit the Tax Foundation. The state’s gas tax is the second-highest nationally, and the total Pennsylvania tax burden ranks 15th. Thankfully, the state’s 3.07% flat income tax is on the lower end of the spectrum.
If you’re trying to navigate the Pennsylvania taxes you’ll face for your specific area, a financial advisor may be able to help. Check out this list of the best financial advisors in Pennsylvania, and read on for more details on the state’s taxes.
Tax overview in Pennsylvania
Income tax in Pennsylvania
Pennsylvania has a relatively simple income tax that must be paid on taxable income for both resident and nonresident individuals. In particular, the commonwealth taxes the following classes of income:
- Net profits from the operation of a business, profession or farm
- Net gains or income from the disposition of property
- Net gains or income from rents, royalties, patents and copyrights
- Income from estates or trusts
- Gambling or lottery winnings except for non-cash prizes from the Pennsylvania lottery
Pennsylvania’s tax rate is a flat 3.07% on all taxable income, and the commonwealth doesn’t offer a standard deduction or personal exemptions. According to the Tax Foundation, this tax rate is relatively low compared to other states — that said, a handful of states have no state income tax at all.
Pennsylvania does offer a handful of deductions, credits and exclusions which include the following:
- Taxes paid by Pennsylvania residents to other states
- Lower income families and individuals receiving tax forgiveness
- Tax credit programs for qualified applicants
- Exclusions from income:
- Qualified payments to Section 125 cafeteria plans for programs covering hospitalization, sickness, disability or death
- Capital gains from the sale of a principal residence if you meet the ownership and use requirements
- Personal use of employer-owned property
Income tax bracket
The single income tax bracket for Pennsylvania applies to all taxable income subject to its income tax.
|Pennsylvania income tax rates|
|Taxable income range||Tax rate|
Corporate income tax in Pennsylvania
C corporation taxation
C corporations must pay a net income tax of 9.99% of federal taxable income after accounting for adjustments that Pennsylvania requires — the Tax Foundation notes this as one of the highest corporate tax rates in the nation.
Pennsylvania used to charge capital stock and foreign franchise taxes in tax years beginning before Jan. 1, 2016, and before Jan. 1, 2014, corporations were also subject to a loan tax. These taxes no longer apply.
Certain C corporations may be subject to other taxes, including:
- Gross receipts tax for utility and transportation companies
- Gross premiums tax for domestic and foreign insurance companies
- Public utility realty tax on regulated utilities
- Bank and trust company shares tax on certain financial institutions
- Title insurance company shares tax on certain financial institutions
- Mutual thrift institutions tax on certain financial institutions
Partnership, S corporation and LLC taxation
Partnerships, S corporations and LLCs typically are not subject to Pennsylvania’s corporate income tax rates. Instead, the income flows through to partners’, shareholders’ or members’ personal income tax returns and are taxed at their individual income tax rates. That said, S corporations do have to pay the corporate net income tax of 9.99% on any built-in gains.
Property tax in Pennsylvania
Pennsylvania ranks 11th highest for property taxes among U.S. states, according to the Tax Foundation’s most recent info. Residents across the commonwealth pay an average effective rate of 1.51% of their property value in property taxes, as noted by the policy nonprofit.
In particular, each locality has the opportunity to set its property tax rates, assessment values and other factors that may impact your Pennsylvania property tax payment. In many parts of the commonwealth, taxes will need to be to the county, the municipality and even the local school district. The highest average property tax payments are typically found in Chester County, while the lowest average property tax payments are located in Forest County. Check with the specific county to learn more about its property taxes.
Sales tax in Pennsylvania
Pennsylvania is one of the many states that charges a sales tax. According to the Tax Foundation, Pennsylvania has the 34th highest combined state and local sales tax rates in the nation. The sales tax rates are as follows:
Pennsylvania sales tax rates
|Whole of Pennsylvania||6%|
|Allegheny County||6% + 1% local|
|Philadelphia||6% + 2% local|
Consumers should care about sales taxes because it increases the cost to receive items or services subject to the taxes. Pennsylvania charges sales tax on most goods, rentals or the use of tangible personal property, digital products and some services. The commonwealth does exempt food (though not ready-to-eat food), most clothing, textbooks, computer services, pharmaceutical drugs, sales for resale and residential heating fuels from sales taxes.
Estate tax in Pennsylvania
Pennsylvania does not have an estate tax, but it does have an inheritance tax. More information on the inheritance tax can be found below.
Inheritance tax in Pennsylvania
An inheritance tax exists within Pennsylvania. The tax must be filed and paid by the person named as the personal representative in the will or the person receiving the inheritance. The Pennsylvania tax rate varies based on who gets the inheritance, as follows:
|Pennsylvania inheritance tax rates|
|Rate||What it applies to|
|0%||Transfers to a surviving spouse|
|Transfers to a parent of a child age 21 or younger|
|Transfers from a parent to a child age 21 or younger (either to or for that child’s use)|
|4.5%||Transfers to direct descendants or lineal heirs|
|12%||Transfer to siblings|
|15%||Transfers to other heirs with certain exceptions|
There is a family exemption of $3,500 available to certain individuals related to the Pennsylvania resident who has died. Deductions for funeral expenses and unpaid liabilities also exist to help lower this tax. In addition, if the inheritance tax payment is made within three months of the death, a discount of the lesser of either 5% of the tax paid or the tax due applies.
Other taxes in Pennsylvania
Alcohol and tobacco tax
Pennsylvania charges a liquor tax of 18% and a malt beverage tax for qualifying beverages sold for use in the commonwealth. The malt beverage tax varies based on the size of the beverage and ranges from $0.0066 for half a pint to $2.48 for a barrel.
Pennsylvania charges a cigarette and little cigar tax of $.013 per cigarette or little cigar stick. Other tobacco products are taxed at $0.55 per ounce with a minimum tax per package of $0.66. E-cigarettes also face a 40% tax.
Pennsylvania’s gas tax for gasoline adds 57.6 cents per gallon purchased, while the undyed diesel and kerosene rate is higher at 74.1 cents per gallon. Jet fuel and aviation gasoline also face a 1.5 cents per gallon and 5.5 cents per gallon tax, respectively.
Pennsylvania charges a use tax for taxable items purchased and delivered into the commonwealth that did not have a sales tax charge associated with them. The use tax rate is 6%. You must add 1% for goods purchased in, delivered to or used in Allegheny County, or 2% for Philadelphia.
Pennsylvania does not charge an intangible tax at this time.
Pennsylvania’s re-employment tax is called an unemployment compensation tax — it serves to protect eligible individuals who have lost their jobs through no fault of their own by providing temporary income. The tax rate is calculated separately for each active Pennsylvania employer.
FAQs about taxes in Pennsylvania
In general, the Pennsylvania income tax requires anyone to pay income taxes on income earned, received and realized from Pennsylvania sources. This means people living in other states but working in Pennsylvania are technically subject to Pennsylvania income tax. Your home state may provide a tax credit for any taxes paid to other states, as Pennsylvania offers people in the opposite situations.
Thankfully, Pennsylvania has signed reciprocity agreements with several states, meaning you won’t be taxed by Pennsylvania for employee compensation income; instead, you’re taxed by your home state. States with agreements include Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia.
Pennsylvania law defines a person as a resident if they are domiciled in Pennsylvania. According to the Pennsylvania Department of Revenue, domiciled means “the place where an individual, by present and voluntary intention, establishes his true, fixed and permanent home or home for the indefinite future.”
You may also be a Pennsylvania resident if you have a permanent home in Pennsylvania and spend more than 183 days of the taxable year in Pennsylvania, with days defined as from midnight to midnight.
The Pennsylvania tax filing deadline for a tax year is usually April 15 of the following year. In 2021, Pennsylvania extended its 2020 income tax return filing deadline to May 17, 2021, to follow the extended deadline for federal income tax returns. You may file your taxes before the deadline if you wish to claim a tax refund.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.