Pennsylvania collects state income tax from most residents and workers
Yes, Pennsylvania has a state income tax. The tax rate is a flat 3.07 percent on wages, salaries, and other earned income. This is one of the lower state income tax rates in the country, but it still applies to most people who live or work in Pennsylvania.
Pennsylvania also taxes certain types of unearned income — interest, dividends, and net capital gains — at different rates. The state does not tax retirement income the same way it taxes wages, which is one reason some retirees move to Pennsylvania. Understanding which income gets taxed and at what rate matters when you file your state return or estimate what you owe.
Key Takeaways
- Pennsylvania's income tax rate on wages is 3.07 percent, applied to most residents and anyone working in the state.
- Interest and dividend income is taxed at 3.07 percent, but capital gains have their own rate structure that varies by holding period.
- Retirement income from pensions, IRAs, and Social Security receives preferential tax treatment and may not be taxed at all.
- You must file a Pennsylvania return if you earned income in the state, even if you live elsewhere, or if you had taxes withheld from your paycheck.
Who has to file a Pennsylvania state return
You must file a Pennsylvania return if you lived in the state for any part of the tax year and had income subject to Pennsylvania tax. This includes W-2 wages, self-employment income, and certain investment income. You also have to file if Pennsylvania withheld tax from your paycheck, even if you do not owe anything — filing is how you recover an overpayment.
If you worked in Pennsylvania but lived in another state, you still owe Pennsylvania tax on the income you earned there. You file a part-year resident return or a nonresident return, depending on how long you lived in Pennsylvania during the year. Your employer should have withheld Pennsylvania tax from your paycheck; if they did not, you may owe when you file.
Pennsylvania has no income tax threshold — meaning there is no minimum income level below which you do not have to file. If you had any taxable income and lived in the state, you should file to may support you do not miss a refund or create a compliance problem.
What income Pennsylvania taxes and what it does not
Pennsylvania taxes wages, salaries, and self-employment income at 3.07 percent. It also taxes interest income and dividend income at the same rate. Net capital gains — the profit you make when you sell an asset for more than you paid — are taxed at 3.07 percent if you held the asset for one year or less, and at a lower rate (currently 5 percent for long-term gains) if you held it longer.
Pennsylvania does not tax Social Security benefits, even if they are your only income. It does not tax distributions from traditional IRAs or Roth IRAs, or from 401(k) plans. It does not tax pension income from any source — federal, state, local, or private. This is a significant advantage for retirees and explains why some people move to Pennsylvania after they stop working.
Pennsylvania also does not tax unemployment benefits, workers' compensation, or certain other forms of information. If you receive income from sources like these, check the Pennsylvania Department of Revenue website or your tax software to confirm whether that specific income is taxable in the state.
How Pennsylvania withholds tax from your paycheck
Your employer withholds Pennsylvania income tax from your paycheck based on the W-4 form you file with them. The withholding is calculated using your gross wages and the number of allowances you claim. If you claim too many allowances, not enough tax is withheld and you may owe when you file. If you claim too few, too much is withheld and you get a refund.
You can change your withholding at any time by submitting a new W-4 to your payroll department. This is useful if your income changes, you get married or divorced, or you have a major life event that affects your tax situation. The change takes effect on your next paycheck.
If you are self-employed or have income with no withholding, you may need to make estimated tax payments to Pennsylvania four times a year. These payments are due on April 15, June 15, September 15, and January 15. Missing estimated payments can result in penalties and interest, even if you ultimately owe no tax.
Filing your Pennsylvania return and getting a refund
You file your Pennsylvania return using Form PA-40, the state income tax return. You can file on paper by mailing it to the Pennsylvania Department of Revenue, or you can file electronically using tax software or a tax professional. Electronic filing is faster and reduces the chance of errors that delay your refund.
Pennsylvania returns are due on the same date as your federal return — April 15 of the year following the tax year, unless that date falls on a weekend or holiday. If you file for a federal extension, you automatically get an extension for Pennsylvania as well, moving your important date to October 15.
If you overpaid Pennsylvania tax during the year, you will receive a refund. The state typically issues refunds within four to six weeks of processing your return if you file electronically, or longer if you file on paper. You can check the status of your refund on the Pennsylvania Department of Revenue website by entering your Social Security number and the amount you expect to receive.
Pennsylvania tax credits that reduce what you owe
Pennsylvania offers several tax credits that lower your state income tax bill. The most common is the Earned Income Tax Credit (EITC), which is available to low- and moderate-income workers. Pennsylvania's EITC is a percentage of the federal EITC, so if you may have access to for the federal credit, you likely may have access to for Pennsylvania's as well.
Pennsylvania also offers credits for property tax or rent paid, depending on your age and income. These credits are designed to help older adults and people with disabilities manage housing costs. You claim these credits on your state return by filing the appropriate form and providing proof of the property tax or rent you paid.
Other credits may be available depending on your situation — for example, if you have dependent children, if you paid tuition, or if you made charitable contributions. Your tax software or a tax professional can help you identify which credits you are may have access to to claim.
How Pennsylvania income tax differs from federal income tax
Pennsylvania's flat 3.07 percent rate is simpler than the federal system, which uses tax brackets that increase as your income rises. This means a high earner in Pennsylvania pays the same percentage as a low earner, though they pay more in total dollars. The federal government, by contrast, taxes higher earners at higher rates.
Pennsylvania also treats retirement income very differently from the federal government. While the federal government taxes most retirement income, Pennsylvania exempts it almost entirely. This creates a significant tax advantage for retirees in Pennsylvania compared to many other states.
The standard deduction and personal exemptions also differ. Pennsylvania does not use a standard deduction the way the federal government does. Instead, you claim a personal exemption of a set amount per person. This amount changes each year. Check the Pennsylvania Department of Revenue website for the current year's exemption amount before you file.
Frequently Asked Questions
Do I have to file a Pennsylvania return if I only lived there part of the year?
If you lived in Pennsylvania for any part of the tax year and had income subject to Pennsylvania tax, you must file. You will file as a part-year resident and report only the income you earned while you lived in the state. If you moved out of Pennsylvania and worked in another state, that other state's income is not reported on your Pennsylvania return.
What happens if I do not file a Pennsylvania return when I should have?
The Pennsylvania Department of Revenue can assess penalties and interest on unpaid taxes. If you had tax withheld from your paycheck but did not file, you may be missing a refund. Filing a late return does not eliminate the penalty, but it does recover any overpayment you are owed. If you think you owe, contact the Department of Revenue to discuss payment options.
Can I deduct federal income tax paid on my Pennsylvania return?
No. Pennsylvania does not allow you to deduct federal income tax paid. You report your Pennsylvania taxable income based on your federal taxable income, but you do not reduce it by the federal tax itself. This is different from some other states that allow this deduction.
Is Pennsylvania income tax withheld if I work remotely for an out-of-state company?
If you live in Pennsylvania and work remotely for a company based elsewhere, Pennsylvania tax should still be withheld from your paycheck. Your employer is required to withhold based on where you work, not where the company is located. If your employer is not withholding, contact them and provide your Pennsylvania address and W-4 form to correct it.
Do I owe Pennsylvania tax on income from a side job or freelance work?
Yes. Self-employment income and freelance income are subject to Pennsylvania income tax at 3.07 percent. You report this income on your Pennsylvania return and may need to make estimated tax payments if no tax is being withheld. Keep records of what you earned and what you spent, because you can deduct legitimate business expenses to reduce your taxable income.