Income Items Taxable as Federal Compensation Compared to Income Items Taxable as Pennsylvania Compensation

There are significant differences between PA PIT and federal income tax. Certain income items that are not taxable for federal income tax are taxable for PA PIT and vice versa.

Please refer to the following tables for differences between federal and Pennsylvania:

Income Items Always Taxable as Pennsylvania Compensation illustrates what items are included in compensation for PA PIT purposes.

Income Items Never Taxable as Pennsylvania Compensation illustrates what items are not included in compensation for PA PIT purposes.

Income Items Taxable as Pennsylvania Compensation Based on Facts and Circumstances on the following pages for descriptions of these items illustrates what items may be taxable based on the facts and circumstances of the item for PA PIT purposes.

Income Items Always Taxable as Pennsylvania Compensation Employee earnings: salaries, wages, tips, gratuities, commissions, bonuses, incentive payments, vacation/holiday pay Severance and termination pay: including front-pay, covenant-not-to-compete payments, early-retirement incentives Reimbursements and allowances in excess of allowable business expenses on PA-40 Schedule UE Directors' fees (will constitute PA-40 Schedule C income if one’s profession is a director for multiple organizations or corporations) Jury fees Witness fees (will constitute PA-40 Schedule C income if testifying as an expert in a field which is considered one’s line of business) Reimbursed moving expenses in excess of allowable expenses on PA-40 Schedule UE Honoraria (will constitute PA-40 Schedule C income if one’s profession is being a professional speaker) Executor's or administrator's fees (will constitute PA-40 Schedule C income if one’s profession is being an executor or administrator) Covenant not-to-compete or payments received as consideration for refraining from the performance of services Proceeds from an employee stock ownership plan to extent of excess computed under cost-recovery method Cash allowances for rent, utilities, or other expenses received by ministers Reimbursements made by an employer for legal services or other personal services National Service Education Awards Income from Peace Corps, VISTA Job Corps and AmeriCorps Household employees pay Employee contributions to an eligible Pennsylvania retirement plan and contributions to a qualified deferred compensation plan Distributions from a nonqualified deferred compensation plan (unless the deferral was previously taxed under rules prior to Act 40 of 2005) Medicare waiver payments or difficulty of care payments Student loan debt forgiveness or payment if provided as employment incentive (does not include forgiveness under the Public Service Loan Forgiveness program or a similar program)

Income Items Never Taxable as PA Compensation Federal active-duty pay earned outside Pennsylvania GI Bill benefits including tuition and living expenses Alimony Child support Income in respect of a decedent (although income classified as IRD at the federal level may be taxable as another class of income in Pennsylvania, such as interest) Inheritance Retirement income, such as: distributions from eligible Pennsylvania retirement plans* after retirement age; Social Security payments; railroad retirement benefits Public assistance Unemployment compensation Occupational Disease Act benefits (if included on the W–2 form attach explanation) Nontaxable fringe benefits for Pennsylvanina personal income tax purposes, such as: meals and lodging provided to an employee by the employe; personal use of employer-owned or leased property or services, at no cost or at a reduced cost (personal use of company automobile, airplane or other employer-owned or leased property); employer-provided parking facilities; employer-provided professional services paid for directly by the employer Premiums paid by an employer for group term life insurance Rental value of parsonage owned by the congregation and required to be occupied by the cleric Foster care Amounts received for permanent loss of body function, disfigurement, or reimbursed medical expense Disability payments paid by employer arising under occupational disease acts or other legislation Strike benefits Life insurance proceeds or settlements Employee contributions or deferrals to a nonqualified deferred compensation plan (all IRC Section 409A plans and some IRC Section 457b plans where the deferrals made are subject to a substantial risk of forfeiture or the employee deferrals made to the plan are not funded by the employer) The State employees’ Retirement System, the Pennsylvania School Employees’ Retirement System, the Pennsylvania Municipal Employees Retirement System and the U.S. Civil Service Commission Retirement Disability Plan are eligible Pennsylvania retirement plans and all distributions are exempt from PA PIT. Retired or retainer pay of a member or former member of a uniform service calculated under Chapter 71 of Title 10, U.S. Code as amended is also exempt from PA PIT.

*Regarding what plans qualify as "eligible Pennsylvania retirement plans," the fact that a plan is a qualified plan for federal income tax is not controlling for PA PIT purposes..