Definition of Gross Compensation for Pennsylvania Personal Income Tax

For Pennsylvania personal income tax (PA PIT) purposes, the term “compensation” includes salaries, wages, commissions, bonuses and incentive payments whether based on profits or otherwise, fees, tips, and similar remuneration received for services rendered as an employee or casual employee, agent or officer of an individual, partnership, business or nonprofit corporation, or government agency, whether directly or through an agent, and whether in cash or in property.

Compensation paid in any medium other than cash is valued at its fair market value. Examples of a medium other than cash include, but are not limited to:

Foreign currency;

Check or other negotiable instruments;

Freely transferable readily marketable obligations or other cash equivalents;

Property interests;

Below-market-rate loans; or

Discharge of indebtedness.

Taxable compensation is not limited to remuneration received for positive action, remuneration that is contractually enforceable or remuneration paid directly by the employer. Taxable compensation may also include:

Tips and other amounts, over which the employer does not have the control, receipt, custody, or payment;

A sum in excess of salary given an athlete for signing with a team or other bonus;

Payments to current and former employees for a covenant not to compete; and/or

Back or front pay for a period of time during which an individual was wrongfully separated from his job and front pay paid in lieu of reinstatement.

Qui tam awards.

Certain items are excluded from the definition of taxable compensation. These items include, among other things:

Income received for active duty military service outside the Commonwealth of Pennsylvania;

Income received for active State duty for emergency within or outside the Commonwealth of Pennsylvania;

Periodic payments for sickness and disability other than regular wages received during a period of sickness or disability;

Disability, retirement or other payments arising under workmen's compensation acts, occupational disease acts and similar legislation by any government;

Payments commonly recognized as old age or retirement benefits paid to persons retired from service after reaching a specific age or after a stated period of employment;

Public assistance or unemployment compensation payments by any governmental agency;

Payments to reimburse actual expenses;

Personal use of an employer's owned or leased property or of employer-provided services; or

Compensation does not include guaranteed payments to a partner even if they are for services.

Refer to the sections that follow for detailed rules regarding specific items of compensation.