Pennsylvania Income Tax Instruction Booklet
If you need to file Form 40 for your income taxes, as most Pennsylvania residents do , then use this instruction booklet to help you fill out and file your form.
We last updated the Income Tax Instruction Booklet in February 2017, so this is the latest version of Form 40 Instruction Booklet, fully updated for tax year 2016. You can download or print current or past-year PDFs of Form 40 Instruction Booklet directly from TaxFormFinder. You can print other Pennsylvania tax forms here.
Extracted from PDF file 2016-pennsylvania-form-40-instruction-booklet.pdf, last modified November 2016
Income Tax Instruction Booklet0 201 2 2016 INSTRUCTIONS BOOKLET NO FORMS INCLUDED TAX RATE The state income tax rate for 2016 is 3.07 percent (0.0307). 2016 TAX RETURN FILING DUE DATE To remain consistent with the federal tax due date, the due date for filing 2016 Pennsylvania tax returns will be on or before midnight, Tuesday, April 18, 2017. TAX FORGIVENESS Depending on your income and family size, you may qualify for a refund or reduction of your Pennsylvania income tax liability with the state’s Tax Forgiveness program. Read the instructions beginning on Page 34 to see if you qualify. 2016 STATE TAX CHANGES What’s New for 2016 With the passage of Act 84 of 2016, cash prize payments received from the Pennsylvania Lottery on or after Jan. 1, 2016 are now taxable for PA personal income tax purposes. PA personal income tax is also required to be withheld on cash prizes paid after July 12, 2016. See Pages 17 and 18 of this booklet and the department’s website for more information. The sale, exchange or disposition of property resulting from an involuntary conversions under IRC Section 1033 are not required to be reported for PA personal income tax purposes if the contributory event occurred after Sept. 11, 2016. See Page 16 for more information. Pennsylvania ABLE (Achieving a Better Life Experience) Savings Program Fund account earnings are not subject to PA personal income tax. See Page 9 for more information. COMBAT ZONE AND HAZARDOUS DUTY SERVICE Pennsylvanians serving in combat zones or qualified hazardous duty areas have the same additional time to file their state income tax returns and make payments as they have for federal income tax purposes. The due date is automatically extended for 180 days from the last day of service or the last day of continuous hospitalization for injuries incurred in one of these areas. See Page 38 for more information. ELECTRONIC FILING OPTIONS E-filing offers advantages not available to taxpayers filing by paper, including error-reducing automatic calculators; prompt confirmation of a successful filing; faster refund processing and direct deposit options. padirectfile: padirectfile is a free service from the Department of Revenue to electronically pa directfile file Pennsylvania income tax returns. The secure system does not involve a third party and is available at no-cost for most taxpayers to submit the Pennsylvania personal income tax return directly to the department. With padirectfile, you can report most types of income and claim dependent children for Tax Forgiveness. To file using padirectfile, you will need your Social Security number and one of the following: last year’s tax liability or PA Driver’s License/Identification Card number. www.revenue.pa.gov Fed-State E-File: Those who don’t qualify for padirectfile but prefer electronically filing state and federal tax returns using software available from reputable vendors can e-file for a fee. Visit www.revenue.pa.gov to explore all the e-filing options. Beginning with 2016 returns, you may also donate all or a portion of your refund to a Pennsylvania 529 College Savings Program Account. See Pages 22 and 41 for additional information. BENEFITS OF ELECTRONICALLY FILING YOUR RETURN SAFE: Regardless of the option you choose, the department protects your information with the latest security safeguards. EASY: The systems perform math calculations for you. FAST: The department processes refunds in half of the time compared to a paper return. DIRECT DEPOSIT: You can have your refund deposited directly into your checking or savings account. Direct deposit is not available with a paper PA tax return. CONFIRMATION: Upon filing electronically the department sends an acknowledgement directly to you, your tax professional or Electronic Return Originator (ERO). In addition, the department created new internet only instructions for PA Schedules A, B, D, E, J, O, SP, T, UE and W-2S. These new instructions provide detailed line-by-line instructions for the schedules. The instructions can be found on the department’s website under Personal Income Tax Forms and Publications. You may need to submit other information such as copies of military orders (if on active duty outside Pennsylvania), Form(s) W-2 (if your employer withheld additional PA income tax), and tax returns you filed in other states (when requesting a PA Resident Credit). Read and follow the instructions. The department reserves the right to request an explanation or supporting information for any amount that a taxpayer reports on a Pennsylvania tax return. Digital products, such as video, books, games, apps, music, software, etc., transferred to a customer by download, streaming or other electronic means are subject to sales and use tax for purchases on or after Aug. 1, 2016. If an online vendor did not charge you sales tax for the purchases of the digital products, you must pay use tax on the items. See the instructions for Line 25, Use Tax, on Pages 20 and 21 for additional information. Although not included in this booklet, one new credit was added to PA Schedule OC, Other Credits. The Coal Refuse Energy and Reclamation Tax Credit was added to PA Schedule OC. Additional information about this new credit and other restricted tax credits is available at www.revenue.pa.gov. REMEMBER: When you use one of the electronic filing options, do not mail a paper copy of your tax return; instead, keep it for your records along with your confirmation number. TAXPAYER SERVICES AND ASSISTANCE ONLINE SERVICES www.revenue.pa.gov Revenue Personal Income Tax e-Services Center • Request an extension of time to file; make payments, including estimated payments; check the status of your return and refund; update your address; calculate penalty and interest; pay tax due by electronic funds withdrawal for PA personal income taxes; and find a link to pay by credit/debit card. Online Customer Service Center • Find answers to commonly asked questions by using the department’s Online Customer Service Center. Use the Find an Answer feature to search the database of commonly asked questions. If you do not find your answer in this area, you can submit your question to a customer service representative. PA Personal Income Tax Guide (PA PIT Guide) • The department’s PA PIT Guide has information that explains Pennsylvania’s income tax and its differences from federal rules. You can only access the PA PIT Guide at the department’s website. You can open specific chapters of the PA PIT Guide and use the search features of Adobe Acrobat Reader™ to find additional information on PA personal income tax rules. The department offers a link for free download of the Adobe Acrobat Reader™. TELEPHONE SERVICES Taxpayer Service and Information Center • Call 717-787-8201 for PA personal income tax help during normal business hours, 7:30 a.m. to 5 p.m. 1-888-PATAXES Touch-tone service is required for this automated 24-hour toll-free line. Call to order forms or check the status of a personal income tax account, corporation tax account or property tax/rent rebate. Harrisburg area residents may call 717-425-2533. FORMS ORDERING SERVICES To obtain forms, visit a Revenue district office or use one of the following services: Internet: www.revenue.pa.gov Pennsylvania income tax forms, schedules, brochures, electronic filing options, and other information are available on the depart- ment’s website. If you do not have Internet access, visit your local public library. Email Requests for Forms: [email protected] Automated 24-hour Forms Ordering Message Service: 1-800-362-2050. • This line serves taxpayers without touch-tone telephone service. Written Requests: PA DEPARTmEnT OF REVEnUE TAx FORmS SERVICE UnIT 1854 BROOKWOOD ST HARRISBURG PA 17104-2244 OTHER SERVICES Services for Taxpayers with Special Hearing and/or Speaking Needs: 1-800-447-3020 (TTY) Free Income Tax Preparation Assistance • You can receive free assistance in preparing uncomplicated, non-business federal, state, and local income tax returns through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. Visit the department’s website, contact the department’s nearest district office, or call the Internal Revenue Service’s toll-free number (1-800-829-1040) for the location of assistance sites. Taxpayers with modest incomes and older residents are urged to take advantage of these services. Language Services • non-English-speaking taxpayers can receive assistance from the department through an interpretation service. Español • El Departamento de lmpuestos puede ayudar los contribuyentes que no hablan inglés por medio de un servicio de traducción durante el periodo de pago de impuestos. Federal Tax Assistance • Federal tax account or technical information and problem solving are available by calling: 1-800-829-1040. • • Recorded Tele-Tax Service on federal tax topics or tax refund information is available by calling: 1-800-829-4477. Federal tax forms and publications are available by calling: 1-800-829-FORm (3676). TAXPAYERS’ RIGHTS ADVOCATE The Pennsylvania Department of Revenue has a Taxpayers’ Rights Advocate who assists taxpayers with PA personal income tax and PA inheritance tax problems and concerns that have not been resolved through normal administrative procedures. It is the Advocate’s responsibility to ensure that the department provides equitable treatment with dignity and respect. For more information concerning taxpayers’ rights, visit the department’s website at www.revenue.pa.gov, or request the department’s Taxpayers’ Rights Advocate brochure (REV-527) from one of the Forms Ordering Services above. 2 PA-40 To contact the Taxpayers’ Rights Advocate: • Send email to: [email protected] • Call: 717-772-9347 • Write: PA DEPARTMENT OF REVENUE TAXPAYERS RIGHTS ADVOCATE LOBBY STRAWBERRY SqUARE PO BOX 280101 HARRISBURG PA 17128-0101 www.revenue.pa.gov PA DEPARTMENT OF REVENUE DISTRICT OFFICES NOTE: Please call ahead to verify a district office’s address and its services or visit the department’s website at www.revenue.pa.gov for information. Taxpayer assistance hours are 8:30 a.m. to 5:00 p.m. H ERIE SCRANTON H SUNBURY H H PITTSBURGH H ALLENTOWN H JOHNSTOWN H HARRISBURG H READING H NORRISTOWN GREENSBURG H CHESTER H H p H p PHILADELPHIA ALLENTOWN STE 4 555 UnIOn BLVD ALLEnTOWn PA 18109-3389 610-861-2000 CHESTER 6TH FL STE 602 419 AVEnUE OF THE STATES CHESTER PA 19013-4451 610-619-8018 ERIE 448 W 11TH ST ERIE PA 16501-1501 814-871-4491 GREENSBURG SECOnD FL 15 W THIRD ST GREEnSBURG PA 15601-3003 724-832-5283 HARRISBURG LOBBY STRAWBERRY Sq HARRISBURG PA 17128-0101 717-783-1405 www.revenue.pa.gov JOHNSTOWN 425 mAIn ST JOHnSTOWn PA 15901-1808 814-533-2495 NORRISTOWN SECOnD FL STOnY CREEK OFFICE CEnTER 151 W mARSHALL ST nORRISTOWn PA 19401-4739 610-270-1780 PHILADELPHIA STE 204A 110 n 8TH ST PHILADELPHIA PA 19107-2412 215-560-2056 PHILADELPHIA ACDmY PLZ SHPG CTR 3240 RED LIOn RD PHILADELPHIA PA 19114-1109 215-821-1860 PITTSBURGH - DOWNTOWN 411 7TH AVE - ROOm 420 PITTSBURGH PA 15219-1905 412-565-7540 PITTSBURGH - GREENTREE 11 PARKWAY CTR STE 175 875 GREEnTREE RD PITTSBURGH PA 15220-3623 412-929-0614 READING STE 239 625 CHERRY ST READInG PA 19602-1186 610-378-4401 SCRANTON Rm 207 BAnK TOWERS 207 WYOmInG AVE SCRAnTOn PA 18503-1427 570-963-4585 SUNBURY 535 CHESTnUT ST SUnBURY PA 17801-2834 570-988-5520 PA-40 3 BEFORE YOU BEGIN Filing Due Date You must file before midnight, Tuesday, April 18, 2017. The U.S. Postal Service postmark date on your envelope is proof of timely filing. You must report all taxable income received or accrued from Jan. 1, 2016, through Dec. 31, 2016. If you cannot file by the due date, request an extension of time to file. Read the instructions beginning on Page 38. If you do not file your return by the due date, the department imposes late filing penalties and interest charges. Who Must File a PA Tax Return? If you are a PA resident, nonresident or a part-year PA resident, you must file a 2016 PA tax return if: • You received total PA gross taxable income in excess of $33 during 2016, even if no tax is due with your PA return; and/or You incurred a loss from any transaction as an individual, • sole proprietor, partner in a partnership or PA S corporation shareholder. Minors. PA law does not exempt a minor from the previously described requirements to file a PA tax return even if claimed as a dependent on a federal return. A parent/guardian must file a return on behalf of the minor child in such circumstances. Decedents. The executor, administrator or other person responsible for the affairs of a decedent must file a PA tax return if the decedent met the previously described requirements. Persons Not Required to File Federal Income Tax Returns. If you are not required to file a federal income tax return, you may still be required to file a PA personal income tax return because the requirements for filing a return in Pennsylvania are different than federal requirements. You must file a return in Pennsylvania if any of the situations previously described apply. See Chapter 4, “Who must File a PA Tax Return” of the PA PIT Guide found on the department’s website, for more information. REMINDERS FOR FILING YOUR 2016 PA-40 Supporting Schedules An acceptable return has not been filed until all schedules required by the department have been filed. Failing to provide required schedules may not only delay the processing of your return, but also subject you to late-filing penalties. Assembling Your PA-40 Arrange your documents in the following order when submitting your 2016 PA tax return: • Original PA-40. Do not mail a photocopy of your PA-40 or a copy of your electronic PA tax return. • PA Schedule W-2S, or photocopies of your Form(s) W-2 (be sure the information is legible), or your actual Form(s) W-2. Use Part B of this schedule to list and total your other taxable compensation. You must submit photocopies of your Form(s) 1099-R and other statements that show other compensation and any PA tax withheld. NOTE: Do not include copies of Form(s) 1099-DIV, and 1099-InT, unless the forms show PA income tax withheld. • PA Schedule OC, and the required supporting documents when claiming any of the restricted tax credits that PA law allows. • PA Schedule(s) RK-1, PA Schedule(s) NRK-1. If you did not receive PA schedules, then submit federal Schedule(s) K-1. See Partnership, Limited Liability Company and PA S Corporation Partners, members and Shareholders on Page 14. PA Schedule(s) G-L. If you are claiming a resident credit for • taxes paid to other states, include each schedule followed by any required supporting documents for the schedule. • All other required PA schedules and forms, including any additional sheets you prepared. IMPORTANT: Please include your name(s), Social Security number(s), tax year, and a brief line reference to the PA-40 or PA-40 schedule for any additional sheets you include with your return. • All other required documents, including federal schedules (where the instructions allow the use of federal schedules), that explain the information you entered. • Using PA Payment Voucher (Form PA-V) and payment. See the instructions on Page 23. 4 PA-40 IMPORTANT: Do not staple your check or money order to your Form PA-V or your PA-40 form. If you do not use a Form PA-V, see the instructions on Page 23. Entering Information • Social Security Number(s) Carefully write your SSn, and your spouse’s SSn if married, in the boxes provided on your PA-40 form. You must enter your SSn, even if using your label. Please double-check your SSn. • Rounding Numbers On the PA-40 form and schedules, show money amounts in whole-dollars. Eliminate any amount less than $0.50 and increase any amount that is $0.50 or more to the next highest dollar. • Your Address Print your name and address on the form. NOTE: If you are using a military address, please use your APO or FPO address. EXAMPLES: KEVIn TAxPAYER JOSEPH TAxPAYER UnIT 2050 BOx 4190 USCGC HAmILTOn APO AP 96278-2050 FPO AP 96667-3931 Foreign Address Instructions (other than Canada) If you live outside of the U.S., it is important that you write your foreign address on your PA-40 according to U.S. Postal Service standards. Failure to use these standards may delay any refunds you request or correspondence necessary to complete the processing of your return. To comply with the foreign address standards, use the following rules when completing the address portion of your PA-40 form: write your name(s) in the spaces provided; write the house number with street, apartment number and street or postal delivery location in the spaces provided for the First Line of Address on your PA-40 form; write the name of the city, city and province, and/or foreign postal number (ZIP code equivalent) in the spaces provided for the Second Line of Address on your PA-40 form; write the name of the country in the spaces provided for the City or Post Office on your PA-40 form; write OC in the entry space for state to indicate out-of-country; and leave the ZIP code spaces on your PA-40 form blank. Other important rules to follow include: using all capital letters to write all lines of the address; initials, simple given names, fictitious names or figures are not permitted; and addresses www.revenue.pa.gov should not have more than five lines. Below are two examples of properly completed foreign addresses as provided by the U.S. Postal Service. Providing your address in this format will better ensure that the department is able to contact you in the event we need additional information, or to send you your refund on a timely basis. THOmAS CLARK 117 RUSSELL DRIVE LOnDOn WIP 6Hq GREAT BRITAIN OC CRISTInA CRUZ APARTADO 3068 46807 PUERTO VALLARTA JALISCO MEXICO OC Canada Only Foreign Address Instructions The same rules apply as for other foreign address instructions. However, when the Canada address contains a postal zone and two-character abbreviation for provinces and territories, there are special spacing rules for the second line of the address for the PA-40. On mail to Canada, there must be two spaces between the province abbreviation and the postal code. A U.S. Postal Service approved Canada address example is as follows: DO: • • • • • • • • • • Privacy Notification By law (42 U.S.C. §405(c)(2)(C)(i); 61 Pa. Code §117.16), the Pennsylvania Department of Revenue has the authority to use the SSn to administer the Pennsylvania personal income tax and other Commonwealth of Pennsylvania tax laws. The department uses the SSn to identify individual taxpayers and verify their incomes. The department also uses the SSn to administer tax-offset and child-support programs required by federal and Pennsylvania laws. The commonwealth may also use the SSn in exchange-oftax-information agreements with governmental authorities. Pennsylvania law prohibits the commonwealth from disclosing information that individuals provide on income tax returns, including the SSns, except for official purposes. WHEN ENTERING INFORMATION Print in black ink Use UPPER CASE (CAPITAL) letters Print one number or letter in each box Leave a blank box between whole words Print your name – last, first, middle initial, and suffix on the correct lines Print your correct street address Print your apartment number, suite number, room number, rural route, floor, etc. on the first line Print your PO Box on the second line Fill in all appropriate ovals completely Prepare a copy before submitting your return DO NOT: • • • • • • • • Use red pen or pencil Use lower case letters or script Leave a blank box or use a punctuation mark if your name, address, or city has mc, Van, O, etc. Use dashes or other punctuation in boxes Print a PO Box number if the post office delivers to your home Use a PO Box on any line of your address except the line directly above your city and state Use an x or check mark (¸) in an oval Erase or use correction fluid/tape GENERAL INSTRUCTIONS PA-40 Tax Form If you do not electronically file your tax return, use the PA-40 form. Please read the instructions. Keep Your Records The department has the statutory authority to verify and audit all of the amounts you report on your return and accompanying schedules. maintain your books and records for at least four years after filing, as evidence of the information you reported on your PA return. Basis documentation for any item reported or potentially reportable on current or future tax returns must be kept indefinitely or at least four years after the asset is sold, exchanged or disposed of by a taxpayer. For example, books and records used to calculate basis for retirement plans, stocks, bonds, mutual funds, business assets, business interests, tuition account programs, principal residence, etc. must be kept indefinitely. Daytime Telephone Number Enter the area code and telephone number where the department can call you between 8:30 a.m. and 4 p.m. School Code and School District Name You must enter the five-digit code and name of the school district where you lived on Dec. 31, 2016, even if you moved after Dec. 31, 2016. Do not enter the school district where you work. Using an incorrect code may affect your school district’s funding. The lists of school district names and codes are on Pages 42 and 43. www.revenue.pa.gov HELEn SAUnDERS 1010 CLEAR ST OTTAWA On K1A 0B1 CAnADA OC NOTE: If you do not know the name of the school district where you resided on Dec. 31, 2016, you can obtain this information from the Online Customer Service Center at www.revenue.pa.gov. Some examples of what to consider when entering the school district code on a return are as follows: • military personnel should use the school district code for the domicile of their spouse (if the spouse lives in Pennsylvania), their parents (if entering the military while they are domiciled in Pennsylvania), or the code for the school district in which they live while on federal active military duty while stationed in Pennsylvania (if a PA resident). • Persons residing in a nursing home or other care facility who are planning to return to their principal residence after a temporary stay in such facilities should enter the school district code for the physical address of their principal residence and not the nursing home or care facility. • Persons who reside in a nursing home or care facility on a permanent basis and have made the decision to do so (who are or were mentally capable of making this decision) should use the school district code for the physical address of the nursing home or care facility. • The residence of a person in a nursing home, long-term care facility or similar facility is presumed to be the person’s residence prior to becoming a patient in the home or facility, unless there is substantial evidence that the person is legally PA-40 5 • • • • • competent and does not intend to return to his/her previous home. PA residents who are students attending college inside or outside of Pennsylvania should use the school district code for the physical address of the domicile or principal residence of their parents. nonresidents or part-year residents who did not reside in the state as of Dec. 31, 2016, should enter 99999 in the school district code field. Part-year residents who resided in Pennsylvania as of Dec. 31, 2016, should enter the school district code of the physical address of their domicile or principal residence. Persons who use a mailing address other than the physical address of the domicile or principal residence should enter the school district code for the physical address of their domicile or principal residence. Persons who work outside of Pennsylvania, but maintain a permanent place of abode inside Pennsylvania during their absence from Pennsylvania or persons who plan to return to Pennsylvania after a temporary relocation to another state or country who are still considered PA residents should use the school district code for the physical address of their permanent place of abode or the school district code of their physical address prior to moving out of Pennsylvania. Extension of Time to File Your 2016 Tax Return Fill in this oval if you have an extension to file your 2016 PA income tax return. Read the instructions beginning on Page 38. Amended Return Fill in this oval only when you are amending your 2016 PA tax return. Please read the instructions on Page 39. Residency Status • (R) Resident If you were a resident of Pennsylvania for all of 2016, fill in this oval. You must report all income (losses) regardless of the source from which you earned, received, or realized the income (loss). Nonresidents and Part-Year Residents Please read the instructions beginning on Page 40. nonresidents and part-year residents use the same PA-40 form as PA residents. • (N) Nonresident If you were a nonresident of Pennsylvania for all of 2016, fill in this oval. PA law taxes nonresidents on the income earned, received, or realized from Pennsylvania sources during 2016. See the instructions beginning on Page 40 for more information. • (P) Part-Year Resident If you moved into Pennsylvania during 2016, fill in this oval even though you were a PA resident at the end of 2016. If you moved from Pennsylvania during 2016, fill in this oval even though you were not a PA resident at the end of 2016. PA law taxes part-year residents on all income from all sources while a PA resident, and all income (loss) earned, received, and realized from PA sources when not a resident of Pennsylvania. See the instructions beginning on Page 40 for more information. See Chapter 4, “Who must File a PA Tax Return,” of the PA PIT Guide found on the department’s website for more information. You may also request the Determining Residency for PA Personal Income Tax Purposes brochure (REV-611) from the department’s website, or one of the Forms Ordering Services on Page 2. Students If you are a PA resident college student attending school outside Pennsylvania or a nonresident college student attending school 6 PA-40 within Pennsylvania, request the brochure PA Personal Income Taxes for College Students (REV-758) for more information. Filing Status Fill in the oval that describes your status on Dec. 31, 2016. You do not have to file a PA tax return if you do not individually meet the requirements described under Who Must File a PA Tax Return? on Page 4. If you do not live in Pennsylvania and do not have any income (loss) from PA sources, you do not have to file a PA tax return, even if married to someone who must file a PA tax return. If you are a PA resident who does not have any PA income (loss) to report, you do not have to file a PA tax return, even if married to a person who must file a PA tax return. (S) Single You must file as single if on Dec. 31, 2016: 1. You were not married; or 2. During 2016, you divorced or became a widow or widower, did not remarry and/or could not or did not elect to file a joint return with a deceased spouse. (J) Married, Filing Jointly You and your spouse, even if living apart or one of you is deceased, can file a joint return for convenience. The executor(s) of the estate(s) of the taxpayer and spouse may also elect to file jointly. To file jointly, you must meet ALL of the following conditions: 1. Your taxable years end on the same date (not including returns with a deceased taxpayer and/or spouse); and 2. You and your spouse elect to have the same residency period (earliest starting date if you moved into Pennsylvania and latest ending date if you moved out of Pennsylvania) if you are part-year residents; and 3. neither of you is individually claiming one or more of the credits on PA Schedule OC, (see Page 20); and 4. Your deceased spouse’s estate has not elected to file a separate return on his or her behalf; and 5. neither of you is individually liable for the payment of child or spousal support, or another liability to the PA Department of Public Welfare. If you and your spouse made separate estimated payments, you should file separate tax returns, each claiming only your own payments. If you and your spouse made your estimated payments jointly, you should file a joint tax return. However, if you and your spouse made estimated payments jointly and because of PA guidelines you must file separate tax returns, you must allocate the payments by completing Form REV-459B, Consent to Transfer, Adjust or Correct PA Estimated Personal Income Tax Account. The form must be completed in its entirety, showing the total number of payments made for the year and the amount of the payments to be transferred to the spouse. Both individuals must sign the form. This form can be sent to the address shown on the form prior to filing the return or a copy of the form can be submitted with both returns when filing. This avoids processing delays and correspondence from the department. Joint Income - Joint Returns married taxpayers can file a joint tax return for convenience only. If you and your spouse jointly own income-producing property, you must each report your share of the income (loss). Income-producing property includes savings accounts, businesses, securities, and real estate. Spouses usually equally divide income from jointly owned property. CAUTION: On a joint return, you and your spouse are each separately liable for the entire amount of PA tax due, even if only one of you had taxable income, and even if one of you paid www.revenue.pa.gov your own PA tax through withholding or estimated payments. The income and losses of a taxpayer and spouse must be determined separately. You may not offset the income of the taxpayer with a loss from the spouse and vice versa. See REPORTInG nET InCOmE, GAInS, AnD LOSSES On LInES 4, 5, AnD 6 beginning on Page 13 and the requirements for the schedules reporting the income and losses for each class of income for additional information and reporting requirements. (M) Married, Filing Separately You and your spouse have the option to file separate returns. However, you and your spouse must file separate returns if: 1. Your taxable years end on different dates; or 2. Your taxable years begin on different dates for part-year residents; or 3. Either of you is claiming one or more of the credits on PA Schedule OC; or 4. Either of you is individually liable for the payment of spousal/child support, or another liability to the PA Department of Human Services; or 5. Either of you is individually liable for a court-ordered obligation to the Administrative Office of Pennsylvania Courts; or 6. One of you is a PA resident and the other is not. However, you can file jointly if you both elect to file as PA residents and meet all other requirements for filing jointly. See married, Filing Jointly beginning on the previous page. CAUTION: You must include your spouse’s SSn even if filing married, Filing Separately. (F) Final Return Use this filing status if you lived in Pennsylvania during 2016, but permanently moved away or if for any other reason, you will not have any PA-taxable income (or loss) in 2017. Provide the reason, such as you moved to another state. REMEMBER: Even after you move from Pennsylvania, you must report any PA-taxable income you earned, received, or realized from PA sources. (D) Deceased Use this status if the taxpayer, spouse or both died in 2016. Enter the date(s) of death. For tax years beginning on or after Jan. 1, 2013, a joint return can be filed by the surviving spouse and decedent when a spouse or taxpayer dies during the tax year if: 1. The decedent did not previously file a return for the tax year; and 2. The personal representative, executor or administrator has not been appointed by the time the return is made, signed and filed; or 3. The fiduciary of the decedent consents to the filing of and signs the joint return. Also for tax years beginning on or after Jan. 1, 2013, the executor(s) of the estate(s) of the taxpayer and spouse (if both die during the same tax year) may elect to file a joint return on behalf of the taxpayer and spouse if: 1. The personal representatives, executors or administrators consent to filing a joint return; and 2. The joint return is signed by both fiduciaries. A surviving spouse must file a separate return if the fiduciary of the estate does not agree to a joint return or if a fiduciary of the decedent is appointed after the filing of the joint return and the fiduciary supersedes the joint return filing by filing a separate return on behalf of the decedent. In cases where a joint return has already been filed www.revenue.pa.gov by the spouse and a fiduciary has been appointed who wants to file a separate return on behalf of the decedent, a separate return for the surviving spouse must be filed within 90 days of the filing of the decedent’s separate return by the fiduciary. If the surviving spouse’s separate return is filed within 90 days, the separate return shall be considered to be filed on the date the original joint return was filed. Otherwise, the surviving spouse’s return shall be considered to be filed on the date the department receives it. • • • • • • FILING TIPS: If a joint return is filed and the taxpayer, spouse or both are deceased, complete the married filing joint oval, the deceased oval and the spouse and/or taxpayer ovals as well as the date(s) of death. The surviving spouse should complete the name and Social Security number section of the return as the primary taxpayer on the return. If a separate return must be filed by the surviving spouse and a joint return was not previously filed, the surviving spouse’s filing status should be single and no information should be included in the deceased filing status area. If a separate return must be filed by the surviving spouse after having filed a joint return, the surviving spouse should also complete the amended return oval and include Schedule PA-40x. If a separate return is filed by the decedent’s fiduciary, the fiduciary should complete the deceased and taxpayer ovals and include the date of death. If both taxpayers die during the tax year and the fiduciaries do not elect to file a joint return, complete the taxpayer deceased oval and include the date of death on the separate returns for each. If a decedent was not married when he or she died, the fiduciary should complete the deceased taxpayer oval and include the date of death. CAUTION: Do not list the deceased taxpayer’s name and Social Security number as the primary taxpayer unless both the taxpayer and spouse die during the tax year and a joint return is filed on their behalf. The executor, or other person responsible for the affairs of the decedent should also use this filing status to complete, sign, and file a separate return for the decedent. The return must report all the decedent’s 2016 income, payments, and credits. The person signing the decedent’s return must indicate his or her relationship to the decedent (executor or person responsible for the affairs of the decedent). Surviving Spouse If the decedent was married, the surviving spouse may be required to file a separate return, and use the Single (S) filing status. If the decedent made PA estimated payments, the surviving spouse may request Form REV-459B to reconcile the estimated payments to the separate PA tax returns. Request this form from the department’s website, or one of the Forms Ordering Services on Page 2. Farmers Fill in this oval if you derived at least two-thirds of your 2016 gross income from farming. Pro-Forma Returns for Taxable Bankruptcy Estates Please see the instructions for the PA-41 Fiduciary Income Tax Return for additional information regarding the preparation of a pro-forma PA-40 Personal Income Tax Return for a taxable bankruptcy estate. PA-40 7 PA INCOME CLASSES You must report your income (loss) by applicable class, whether it is received directly, as estate or trust income or as a distributive share of the income of a partnership or PA S corporation. Read the instructions for each income class. Line 1. Compensation – Page 9 Line 2. Interest – Page 12 Line 3. Dividends and Capital Gains Distributions – Page 13 Line 4. net Income or Loss from the Operation of a Business, Profession, or Farm – Page 15 Line 5. net Gain or Loss from the Sale, Exchange, or Disposition of Property – Page 15 Line 6. net Income or Loss from Rents, Royalties, Patents, or Copyrights – Page 16 Line 7. Estate or Trust Income – Page 17 Line 8. Gambling and Lottery Winnings – Page 17 Federal income classifications are disregarded to the extent they are inconsistent with PA classifications. Generally, other or miscellaneous income is either compensation on Line 1a, (see Page 9), or business income on Line 4, (see Page 15). If you cannot determine the income class, contact the department for assistance. TAXABLE INCOME FOR PA PIT PURPOSES: The PA-40 line number on which to report the income follows each item. Classify means report the income in the appropriate PA income class based on all facts and circumstances. See PA PIT Guide for more information. • Employer provided fringe benefits, unless excludable (Line 1a) • Sick pay and disability benefits that represent regular wages, such as sick leave pay (Line 1a) • Allowances and reimbursements in excess of allowable employee business expenses (Line 1a) • The value of property received as payment for services (Line 1a) • Delay damages received in connection with a court judgment or settlement to the extent that the payments represent back wages (Line 1a) • Honoraria (Line 1a) • Compensation as fees for performing services as an executor or an administrator of an estate or a director of a corporation (Line 1a) • Severance pay (Line 1a) • Incentive payments received for terminating employment before reaching normal retirement age (Line 1a) • Awards and gifts given in recognition for, or given as a transfer of cash or property, in payment for past, present, or future service as an inducement to perform future services (Line 1a) • Jury fees (Line 1a) • Expert witness fees (Line 1a) • Cash reimbursements for personal expenses, such as commuting and day care (Line 1a) • A discharge of indebtedness, unless specifically excludable from taxable income (Classify) • Damage awards and settlements to the extent that the payments represent back wages or another uncollected entitlement to PA-taxable income (Classify) • Covenants not to compete, or for refraining from the performance of services (Classify) • Other income described in the PA income classes (Classify) 8 PA-40 • Income for performing services as an executor or director when such services are undertaken as part of your business or profession (Line 4) INCOME NOT TAXABLE FOR PA PIT PURPOSES: • Social Security benefits and/or Railroad Retirement benefits • Commonly recognized pension, old age, or retirement benefits paid after becoming eligible to retire, and retiring United mine Workers Pension • • military pension benefits • Civil Service Annuity • Unemployment compensation and public assistance • Payments received under federal trade assistance, trade adjustment allowances and alternative adjustment assistance. • Payments received under workers' compensation acts, occupational disease acts, or similar legislation; including Heart and Lung Pension Payments for injuries received while working, and damages • received, whether by suit or otherwise, for personal injuries • Sick pay and disability benefits, including payments by third party insurers for sickness or disability (does not include amounts paid as sick leave) NOTE: If your employer includes your payments for sickness, disability, and/or on-the-job injuries in Box 16 of your Form W-2, provide a statement from your employer verifying the amount of these payments. • Employer-paid group term life insurance premiums • Damage awards and settlements from physical injury or sickness such as pain and suffering or emotional distress • Child support • Alimony • Inheritances, death benefits, and income in respect of a decedent (IRD) as defined for federal income tax purposes • Active-duty pay received as a member of the U.S. Armed Forces from the U.S. government for service outside Pennsylvania (see Page 38) • Awards and gifts made from detached or disinterested generosity • Personal use of an employer’s owned or leased property and/or services, at no cost or at a reduced cost • Federally taxable punitive damages received for personal physical injury or physical sickness, whether received by suit or by settlement • Income from contracts of insurance for long-term care that do not have accumulated refundable reserves payable upon lapse or surrender • Interest earned from an IRC Section 529 plan like the Pennsylvania 529 College Savings Program when earned or used for qualified Higher Education Expenses as defined by IRC Section 529 (e)(3)(A). DIFFERENCES BETWEEN PA PIT AND IRS For more information on differences between Pennsylvania and the IRS, refer to the PA PIT Guide and the specific chapters related to the income class for which you have a question. The following differences are the result of recent Pennsylvania and federal legislation: Depreciation - PA Limitations • Bonus Depreciation PA PIT law does not follow the federal allowances for additional depreciation expenses. You may not use any of the bonus depreciation elections enacted for federal purposes. www.revenue.pa.gov • • • ACRS and MACRS and IRC Section 179 Pennsylvania allows ACRS and mACRS and limited IRC Section 179 to the extent allowable under the version of the Internal Revenue Code in effect at the time the property was placed in service, or under Section 179 of the IRC of 1986, as amended to Jan. 1, 1997, whichever is earlier, but not any other accelerated method. 72 PS § 7303(a.3)(Act 89 of 2002.) Limited IRC Section 179 The maximum deduction that PA income tax law permits using IRC Section 179 is $25,000. If you have income (loss) from more than one business, profession, or farm, you may not deduct more than a total of $25,000 of IRC Section 179 expenses for all activities. The PA Section 179 expense is phased out for purchases in excess of $200,000. For more information regarding what PA Section 179 expenses are allowed or allowable, please see Informational notice PIT 2012-05 on the department’s website at www.revenue.pa.gov. Intangible Drilling Costs Per Act 52 of 2013, taxpayers that directly incur intangible drilling and development costs (IDCs) may elect to currently expense up to one-third of the IDCs in tax years beginning after • Dec. 31, 2013. The remainder of the IDCs may be amortized over 10 years. If a taxpayer does not elect to currently expense his/her IDCs, he/she may amortize the IDCs over 10 years. For tax years beginning prior to Jan. 1, 2014, IDCs must be amortized over the life of the well. CAUTION: Any election to expense up to one-third of the IDCs must be made by the taxpayer incurring the IDCs. A partner or shareholder may not make an election to expense IDCs passed through from a partnership or S corporation. Other Differences You must adjust your federal expense for the difference between your federal depreciation and your depreciation for PA PIT purposes, when you elect a different generally accepted method that you consistently use. IMPORTANT: The basis for property (where bonus depreciation or IRC Section 179 in excess of $25,000 has been taken for federal income tax purposes) will be different for federal and state tax purposes. As a result, PA law requires straight-line depreciation to be taken on these assets. PA-40 LINE INSTRUCTIONS Deductions PA law does not allow standard deductions, deductions for personal exemptions, itemized deductions or deductions for personal expenses. CAUTION: PA-taxable interest income (Line 2), dividend income (Line 3) and gambling and lottery winnings (Line 8) are gross taxable income classes. You may not deduct any expenses in computing these classes of income. In computing compensation, only certain expenses are deductible; see the PA Schedule UE instructions beginning on Page 25. The remaining classes of income are net taxable - you may deduct ordinary and necessary expenses paid or accrued during the taxable year in their production. See the line instructions for each class of income. Cost Recovery PA law does not permit deductions or exemptions for contributions to retirement plans, investments in annuities, mutual funds, money market funds, and other personal contributions, even when deducted or exempt for federal purposes. Therefore, Pennsylvania will not tax your distributions or the payments you receive until you have recovered an amount equal to your contributions. maintain your records of your contributions. If you receive an early taxable distribution from a retirement plan, and you do not have records of your contributions, consult your plan administrator. Education Savings Accounts - qualified Tuition Programs under IRC Section 529, like Pennsylvania 529 College Savings Program Contributions to a Pennsylvania 529 College Savings Program account and other IRC Section 529-qualified tuition program accounts are deductible. For additional information, see the instructions for Line 10, Other Deductions, on Page 18 and the instructions for PA Schedule O, Other Deductions, on Page 34. NOTE: Certain withdrawals and distributions not used for educational purposes are taxable. See the instructions for PA Schedule A beginning on Page 29 for additional information. Pennsylvania ABLE Savings Program Fund Accounts Qualified IRC Section 529A Accounts Earnings on contributions to an account established under the ABLE (Achieving a Better Life Experience) Savings Program Fund www.revenue.pa.gov with the Pennsylvania Treasury Department are exempt from taxation when used for qualified disability expenses of eligible individuals. Withdrawals for other than the above purposes are subject to tax. The cost recovery method is used to determine the amount subject to tax. LINE 1a. GROSS COMPENSATION Overview: PA-taxable compensation includes, but is not limited to: salaries; wages; tips; gratuities; commissions; bonuses; incentive payments; vacation and holiday pay; employer student loan payments; student loan debt forgiveness for entering certain fields or professions; distributions from nonqualified deferred compensation plans; certain early distributions from retirement plans; and termination pay. The amount your employer reports in Box 16 of your Form W-2 shows your PA-taxable compensation. If you receive Forms 1099 or other statements, your PA-taxable compensation is the gross amount that you received for performing services. The amount in Box 16 of your Form W-2 may be different from the amount in Box 1. PA law requires your employer to follow PA income tax rules to determine Box 16. If you have any questions, contact your employer. Form W-2 Wage and Tax Statement When reporting PA-taxable compensation, you may or may not have to submit Form(s) W-2 with your tax return. If you do not have to submit your Form(s) W-2 as shown on Page 10 in When to Submit Form(s) W-2, you have these options: • Complete PA Schedule W-2S, Summary of PA-Taxable Employee, miscellaneous, and non-employee Compensation. See the instructions beginning on Page 24 and When to Submit Form(s) W-2 on Page 10; or Submit photocopies of your state copy of each Form W-2 on • 8-1/2 x 11-inch paper. You may photocopy more than one Form W-2 on each sheet, but the form must be legible; or • Submit your actual state copy of Form(s) W-2. Report your PA compensation and withholding from each 2016 Form W-2 from each employer. Enter your PA-taxable compensation from Box 16 of your 2016 Form(s) W-2. Do not use Box 1, Federal PA-40 9 Wages. Report your PA income tax withheld from Box 17 of each Form W-2 on Line 13 of your PA-40. Do not report federal income tax withheld, or income tax withheld or paid to another state or country, or income tax withheld and paid to any local tax authority. When to Submit Form(s) W-2 Submit an actual state copy or a legible photocopy of each state copy of Form W-2 (keep the original for your records) and a written explanation if: 1. The PA compensation you enter on Line 1a of your PA-40 is not the same as Box 16 on your Form W-2 (you believe that the PA compensation or withholding is incorrect). 2. Your employer gave you a handwritten Form W-2. 3. Your employer reported an incorrect amount on your Form W-2. You must also submit a written statement from your employer. 4. Your employer withheld PA income tax from your wages at a rate that is more than the 2016 tax rate of 3.07 percent. 5. You are a resident of a reciprocal compensation agreement state and your employer withheld PA income tax. 6. The medicare wages in Box 5 on your Form W-2 are greater than your PA wages in Box 16. In this case, complete and include with your return the PA-40 W-2 Reconciliation Worksheet. To obtain the worksheet, use one of the Forms Ordering Services on Page 2. 7. You are a PA resident working in another state or country and did not have PA income tax withheld by your employer. 8. You have a distribution from a nonqualified deferred compensation plan included in Box 1 of your Form W-2. 9. Your Form W-2 shows income earned or tax withheld for another state. NOTE: If you do not have a Form W-2 or a federal substitute W-2, Form 4852, you must submit evidence of your PA compensation and tax withheld by providing pay stubs and a statement identifying your employer and the reason you do not have a Form W-2. Please submit legible photocopies. Keep your original documents. FILING TIPS: 1. Complete and submit a PA Schedule W-2S unless the original Form W-2 is required to be included with your return as described above. 2. Some original Form W-2 documents cannot be processed by the department’s imaging equipment (onion skin paper printed in blue ink, for example) and could delay the processing of a return. If possible, submit a photocopy of the Form W-2 on standard size paper instead of the actual Form W-2. 3. If the PA-taxable wages you are reporting are less than the amount reported on your Form W-2, please include a brief explanation of the difference with your return and/or a letter from your employer documenting the difference in taxable amounts. 4. If your employer withholds excess PA personal income tax at your request, include with your return a statement from your employer verifying the rate and amount of tax withheld for the tax year. 5. If you worked outside of Pennsylvania and your employer did not withhold PA personal income tax, your PA wages may be higher or lower than the state wages reported on your Form W-2 in Box 16. Amounts paid to you as retirement plan contributions, personal use of company automobile and/or group term life insurance may require additional adjustments to the amount reported to the other state or country. See the PIT Guide, Chapter 7 for additional information. 10 PA-40 CAUTION: If you receive distributions of previously taxed contributions from a nonqualified deferred compensation plan, you should complete and include with your return the PA-40 W-2 Reconciliation Worksheet. To obtain the worksheet, use one of the Forms Ordering Services on Page 2. Reciprocal Compensation Agreement States Pennsylvania has agreements with Indiana, maryland, new Jersey, Ohio, Virginia and West Virginia. Generally, under these agreements, one state will not tax a resident of the other state on compensation that is subject to employer withholding. These agreements apply to most types of W-2 compensation earned while a resident of the reciprocal compensation agreement state. It does not apply to miscellaneous and non-employee compensation, compensation earned while a PA resident and received while a resident of the reciprocal compensation agreement state or compensation paid to Ohio resident shareholder-employees with a 20 percent or greater interest in a PA S corporation who worked or performed services in Pennsylvania in 2016. If you are a PA resident working in one of these states, and your employer withheld the other state’s income tax, you must file for a refund from that state. File early so you will have your refund before the due date for paying your PA tax liability. IMPORTANT: If you earn at least $8,000 in the other state, and your employer doesn’t withhold PA income tax, under PA law you may have to make estimated payments. Please read the information on Page 38. If this is your situation, you are liable for Estimated Underpayment Penalty. See the instructions for Line 27 on Page 21. Resident of a Reciprocal State Filing for a Refund If you are a resident of a reciprocal state working in Pennsylvania and your employer withheld PA income tax, you may request a refund of the PA tax. You report zero taxable compensation on Line 1a, and the PA tax withheld on Line 13. You must submit a legible photocopy of your Form W-2, a copy of the resident income tax return that you filed with your resident state (without the supporting forms and schedules), and a statement explaining that you are a resident of a reciprocal state. Reimbursable Expenses/Cash Reimbursements for Personal Employee Expenses PA-allowable employee expenses are not always the same as allowable federal business expenses. Read the instructions beginning on Page 25. You must be able to substantiate travel expenses as to time, place and business purpose. Report all reimbursements and allowances paid by your employer as compensation unless you meet all three of the following requirements: 1. The expenses are PA-allowable employee business expenses; and 2. You must, and do, account for these expenses to your employer; and 3. Your employer reimburses you in the exact amount of the allowable business expenses. If you receive a fixed-mileage allowance or a per-diem living expense allowance that does not exceed applicable federal limits, you meet these requirements. Do not report these expenses on PA Schedule UE. Retirement, Pensions, and Deferred Compensation • Eligible Employer-Sponsored Retirement Plans Pennsylvania does not impose income tax on payments you receive that are commonly recognized retirement benefits www.revenue.pa.gov • • distributed from eligible employer-sponsored retirement plans. Eligible employer-sponsored retirement plans can, but do not necessarily, include employer-sponsored deferred compensation plans; pension or profit sharing plans; 401(k) plans; thrift plans; thrift savings plans; and employee welfare plans. Ask your employer or plan administrator if your employer’s retirement plan is an eligible plan for PA income tax purposes. Eligible non-employer-sponsored retirement plans can, but do not necessarily, include Individual Retirement Accounts (IRAs) and Roth IRAs. Contributions The contributions you make to your employer’s sponsored retirement plan are PA-taxable compensation, even if your contributions are not taxable for federal purposes or included in the state wages shown on your W-2. Distributions from Eligible Employer-Sponsored Retirement or Deferred Compensation Programs All amounts you receive from your eligible employer-sponsored retirement or old age benefit plan are taxable in the year you receive the payments, except: 1. Payments you receive after you qualify for retirement and retire. 2. Payments you receive that you rollover into another deferred payment program or retirement IRA, but only when the transferred amounts are not taxable income for federal purposes. 3. Distributions from an employer-sponsored deferred compensation plan that represent your previous contributions. 4. Payments paid to the estate or designated beneficiary upon an employee’s death are not PA-taxable income on the employee's final PA-40 or on the decedent’s estate or trust PA-41, PA Fiduciary Income Tax Return or on the beneficiary’s PA-40. 5. All distributions (regardless of the distribution code reported in Box 7 of the 1099-R) from 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. 6. Retired or retainer pay of a member or former member of a uniform service computed under Chapter 71 of Title 10, U.S. Code as amended. Individual Retirement Accounts • Contributions PA law does not allow you to deduct your contributions to any IRA. • Undistributed Income You do not report the undistributed interest and other earnings on the assets held in your IRA. • Withdrawals Distributions from an IRA, including a federal Roth IRA, are taxable to the extent the distribution exceeds your previous contributions. Distributions you receive after retiring but before age 591/2 are taxable even if you receive substantially equal payments, and you do not pay the federal penalty for an early withdrawal. PA law does not have any exceptions similar to the federal exceptions for withdrawal before age 591/2. However, distributions from an IRA are not taxable if the payments are: 1. Received, including lump sum distributions, on or after reaching the age of 591/2; or 2. Paid to the estate, or designated beneficiary, of the participant because of the participant’s death. www.revenue.pa.gov • • Traditional IRA Rollover You do not have to pay PA tax on the difference between the amount distributed from your traditional IRA and your previous contributions: 1. If you rolled over the entire withdrawal directly (trustee to trustee) from one traditional IRA to another traditional IRA; or 2. If you withdrew from the traditional IRA and within 60 days invested the entire (100 percent) amount you received into another traditional IRA. Roth IRA Rollover You do not have to pay PA tax on the difference between the amount distributed from your traditional IRA and your previous contributions: 1. If you rolled over the entire withdrawal directly (trustee to trustee) from the traditional IRA to the Roth IRA; or 2. If you withdrew from the traditional IRA and within 60 days invested the entire (100 percent) amount you received into a Roth IRA. CAUTION: If federal tax is withheld from a rollover distribution, the amount of federal tax withheld must also be reimbursed into the new IRA account in order for the rollover to be considered nontaxable for PA PIT purposes. See Filing Tips beginning on Page 24 for additional information. IMPORTANT: For detailed information on Pennsylvania taxation of distributions from IRAs, please review Tax Bulletin 2008-01 on the department’s website, www.revenue.pa.gov. Early Retirement Incentive Plans Payments you receive as an inducement to retire early are taxable compensation. Such payments are not part of a PA-qualifying retirement program. Your employer includes these incentive payments on your Form W-2 and withholds PA tax. Even when you move out of Pennsylvania, these incentive payments remain taxable to Pennsylvania. • Distributions If you withdrew from your retirement or pension plan, and received a Form 1099-R, you may have PA-taxable compensation if: 1. Your retirement plan is not an eligible employer-sponsored retirement plan; or 2. You have not reached the retirement age or years of service requirements under such eligible, employer-sponsored retirement plan. Non-qualified Deferred Compensation Programs With certain exceptions, Pennsylvania’s constructive receipt rules are the same as the federal constructive receipt rules to determine when compensation is received by a cash basis taxpayer. Following the federal constructive receipt rule, deferrals to nonqualified deferred compensation plans are not included in compensation. However, compensation includes distributions from nonqualified deferred compensation plans attributable to an elective deferral of income, regardless of whether the distributions are paid during employment or retirement. Also, distributions of previously taxed contributions are not taxable. If you receive distributions of previously taxed contributions, complete and include with your return the PA-40 W-2 Reconciliation Worksheet. To obtain the worksheet, use one of the Forms Ordering Services on Page 2. Federal Form 1099-R (qualified Plans and IRAs) The PA PIT Guide contains a table which cross-references the information on the Form 1099-R with its corresponding PA income tax treatment. PA law does not follow federal law concerning early PA-40 11 retirement options for Individual Retirement Accounts, IRC Section 401 plans, 403 plans, and other federally qualified plans. To determine if the amount you received is taxable in Pennsylvania, review Boxes 1 through 3 (the amount you received or your distributions) and the PA tax treatment of Box 7 (the codes that will help determine the taxability of your distribution). The federal codes contained in Box 7 of Form 1099-R include: • Code 1 & 2 Early Distribution This distribution is taxable for PA purposes, unless: (1) your pension or retirement plan was an eligible employer-sponsored retirement plan for PA tax purposes; and (2) you retired after meeting the age conditions of the plan or years of service conditions of the plan. If your plan was not an eligible employersponsored retirement plan, or if you have not attained the age or years of service required under the plan to retire, you must determine the PA-taxable amount of your distribution. You must use the cost recovery method to determine this amount. See Page 9 for additional information. IMPORTANT: If you are not sure whether your plan was an eligible employer-sponsored retirement plan under PA tax law, ask your plan administrator. • Code 3 or 4 Death/Disability Distribution This is a distribution due to death and/or disability. Distributions due to death or disability are generally not taxable for PA purposes. However, if the distribution codes are Code 3D or Code 4D, these distributions are taxable to the extent they are taxable for federal income tax purposes as interest income on Line 11 of PA Schedule A. • Code 7 Normal Distribution This distribution from an eligible employer-sponsored retirement plan is not taxable if you met the plan requirements (the age and/or years of service required by the plan) for retirement, and retired after meeting those requirements. CAUTION: Distributions from a commercial insurance or mutual company annuity (Code D also included with Code 7) purchased as a retirement annuity are not distributions from an eligible employer-sponsored retirement plan and are taxable as interest income to the extent they are included in federal gross taxable income. 1099-R Code 7D distributions are taxable to the extent they are taxable for federal income tax purposes as interest income on Line 11 of PA Schedule A. See Annuities, Life Insurance or Endowment Contracts on Page 13 and the instructions for PA Schedule W-2S beginning on Page 24 for additional information. • Code G or H Rollover This is a rollover from one qualified fund to another and is not taxable for PA purposes. See IRA Distributions on this page. • Box 8 Distributions listed in this box are distributions from an insurance policy or annuity purchased for your retirement. Such distributions are not taxable if: (1) your insurance policy or annuity was from an eligible employer-sponsored retirement plan for PA tax purposes; and (2) you retired after meeting the age or years of service conditions of such eligible plan. If you do not meet these requirements, the taxation of your distributions is based upon what is taxable for federal income tax purposes. See Page 13 for additional information. This distribution is taxable as interest on PA Schedule A, not as compensation on Line 1a. Box 9b • If an amount is entered in the total employee contributions box, it may be used to determine the taxable amount of any 12 PA-40 • distributions when using the cost recovery method for PA personal income tax purposes. Boxes 12 and 13 If there is state withholding noted in Box 12 of the 1099-R and the state indicated in Box 13 is PA, report the amount of PA tax withheld on PA Schedule W-2S in Part B. A copy of the 1099-R reporting the withholding must be included with the return. IRA Distributions (60-day rollover rule) If you received a distribution from an IRA (before age 591/2 and retiring) and rolled the entire distribution (100 percent) into a Roth IRA directly, or within 60 days, the distribution is not taxable income for PA purposes. If you did not roll the entire distribution into another IRA, you must report PA-taxable income to the extent the distribution exceeds your contributions that is apportionable thereto. IMPORTANT: If you retired, but did not reach age 591/2, you must report your distributions on a cost recovery basis until you reach age 591/2. Annuities If you
2016 Pennsylvania Personal Income Tax Return Instructions (PA-40IN)
More about the Pennsylvania Form 40 Instruction Booklet Individual Income Tax TY 2016
Other Pennsylvania Individual Income Tax Forms:
|Form Code||Form Name|
|Form PA-40||Pennsylvania Income Tax Return|
|Form PA-40 PA-V||PA-40 Payment Voucher|
|Form PA-40 SP||PA Schedule SP - Special Tax Forgiveness|
|Form PA-40 W-2S||PA Schedule W-2S - Wage Statement Summary|
|Form PA-40 UE||PA Schedule UE - Allowable Employee Business Expenses|
Pennsylvania usually releases forms for the current tax year between January and April. We last updated Pennsylvania Form 40 Instruction Booklet from the Department of Revenue in February 2017.
About the Individual Income Tax
The IRS and most states collect a personal income tax, which is paid throughout the year via tax withholding or estimated income tax payments.
Most taxpayers are required to file a yearly income tax return in April to both the Internal Revenue Service and their state's revenue department, which will result in either a tax refund of excess withheld income or a tax payment if the withholding does not cover the taxpayer's entire liability. Every taxpayer's situation is different - please consult a CPA or licensed tax preparer to ensure that you are filing the correct tax forms!
Historical Past-Year Versions of Pennsylvania Form 40 Instruction Booklet
We have a total of two past-year versions of Form 40 Instruction Booklet in the TaxFormFinder archives, including for the previous tax year. Download past year versions of this tax form as PDFs here:
2016 Pennsylvania Personal Income Tax Return Instructions (PA-40IN)
2015 Pennsylvania Personal Income Tax Return Instructions (PA-40IN)
While we do our best to keep our list of Pennsylvania Income Tax Forms up to date and complete, we cannot be held liable for errors or omissions. Is the form on this page out-of-date or not working? Please let us know and we will fix it ASAP.