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PA-40 -- Part B

Income, Withholding, and Credits Information
PA Income Tax Classes

Regardless of how you file your federal tax return, you report income and loss in the PA income classes in which you directly earned, received, or realized the income or loss.

The eight Pennsylvania income classes and associated Pennsylvania schedules are:

Line Title Description PA Schedule

Filing Tip: Generally for PA purposes, other or miscellaneous income is either compensation or business income. Read the instructions for Line 1a, Gross Compensation and for Line 4, Net Income, or Loss from the Operation of a Business, or Profession.

Line 1a. Gross Compensation
Enter compensation from a W-2 Part A and compensation from a 1099 on Schedule W2S. The information you enter on the schedule(s) will be automatically carried forward to Line 1a.

Your taxable compensation is the amount your employer reports in box 16 of your Form W-2. PA taxable compensation includes, but is not limited to:
Wages, tips, gratuities
Commissions and bonuses
Incentive payments
Vacation and holiday pay
Termination pay
If you receive a Form 1099 or other statement, your PA taxable compensation is the gross amount that you received for performing services. If you have expenses to claim against this income, complete Schedule C instead of reporting the income on Line 1A as compensation. DO NOT list income for a 1099-R if you received distributions from a qualified retirement plan.

Reciprocal Agreement States
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 employee compensation only.
Pennsylvania has agreements with:
New Jersey
Virginia and
West Virginia.
If you are a PA resident working in one of these states, and your employer withheld the other state’s income tax;
File for a refund from that state.
File a PA Personal Income Tax return and pay the tax due.
If you file the other state’s return early, you will have your refund before the due date for paying your PA tax liability.

If you are a resident of a reciprocal agreement state working in Pennsylvania, and your employer withheld PA income tax;
Request a refund of the PA tax.
Report zero (0) in the column for PA taxable compensation and the amount of PA tax withheld in the last column of the PA Schedule W-2S. (These amounts will be carried forward to Lines 1a and Line 13 of your PA-40 return.)
Use the Statement Schedule to explain that you are a resident of a reciprocal agreement state and that your employer withheld PA income tax.
You may be asked to submit a legible photocopy of your Form W-2 and/or, a signed copy of the resident income tax return that you filed/will file with your resident state (without the supporting forms and schedules).
For more information about the Reciprocal Agreement States, see REV-581, Pennsylvania Personal Income Tax .

PA Schedule W2S (Part B)
Use this Schedule to report PA taxable:
Executor fees
Jury duty pay
Director's fees
Covenant not to compete
Damages or settlements for lost wages, other than personal injury
Other non-employee compensation
Distributions from employer sponsored retirement, pension, or qualified deferred compensation plans
Distributions from IRA (Traditional or Roth)
Distributions from charitable Gift Annuities
Distributions from Life Insurance, Annuity, or Endowment Contracts
Distributions from your retirement or pension fund
If you withdrew from your retirement or pension fund, and you received a Form 1099-R, you may have PA taxable compensation. Report taxable distributions in Part B.
Some or all of your distribution may be taxable:
If your retirement plan is not a qualified plan, or
If you have not reached the retirement age or years of service required
The general rule:
If you withdrew money from a qualified pension program and
You have met the conditions for retirement and have retired,
Then, the amount of your distribution in Box 1 is not taxable. The distribution code in Box 7 will be a 7.
Retired means you met the requirements of a Pennsylvania eligible plan and separated from service, by retiring. Therefore, your retirement benefits are not taxable for PA Personal Income Tax purposes.

PA Schedule UE
Line 1b. Unreimbursed Employee Business Expenses
If you have unreimbursed employee business expenses, enter the type of expense and the amounts on Schedule UE.

Expenses are limited to those expenses that are:
Ordinary, customary and accepted by the industry or occupation in which you work; and
Actual expenses paid while performing the duties of your employment; and
Reasonable in amount and not excessive; and
Necessary to enable you to properly perform the duties of your employment; and
Directly related to performing the duties of you occupation or employment.
Unreimbursed employee business expenses may include:
Union Dues, including fair share
Small tools and supplies
Work clothes and uniforms
Actual vehicle expenses
Professional license fees, malpractice insurance, and fidelity bond premiums
Education expenses
Office and work area expenses
Depreciation expenses
Miscellaneous expenses
Other things to remember:
The Department has the legal authority to request evidence that your expenses are allowable for PA purposes.
PA law does not have thresholds or limitations on allowable employee business expenses, such as the federal government. If it is allowable, it is 100 percent deductible.

Line 1c. Net Compensation
Line 1a less Line 1b. This amount is automatically calculated for you.

PA Schedule A
Line 2. Interest Income
Report all PA-taxable interest income received or credited during the year. Generally, Forms 1099-INT and similar statements from financial institutions show the interest amount. You do not have to submit these forms and statements. PA taxable interest income includes but is not limited to interest income from personal savings and checking accounts, insurance contracts, obligations of other states (not Pennsylvania), and investments.

PA Schedule B
Line 3. Dividend and Capital Gains Distributions from Mutual Funds

Report all dividend income received or credited during 2017. You do not have to submit your forms 1099-DIV and other statements.

PA Schedule C
Line 4. Net Income from the Operation of a Business or Profession, or Farm

Report all income (loss) from business, farm, and business activity.

Your activity qualifies as a business if your primary purpose for engaging in the activity is income or profit, and you conduct your activity with continuity and regularity. Certain rental activity may be business income and not rental income. If you are a sole member of an LLC, complete PA Schedule C.

For additional information regarding the definition of a business or profession, and for Pennsylvania’s requirements for reporting income and expenses, go to the Department's Web site and link to the PA PIT Guide.

Note: Pennsylvania determines income and loss under those accounting principles, systems, or practices that are:
Acceptable by standards of the accounting profession, and
Consistent with the regulations of the Department setting forth such principles and practices.
Pennsylvania does not generally follow federal tax accounting rules to determine income or loss:
You may use any accounting method for PA purposes, as long as you apply your accounting methods consistently.
An owner may deduct all losses in the taxable year realized. You report all transactions that are directly related to your business or profession on your PA Schedule C.
You should not use the installment method for sales of inventory if you sell such inventory in the regular and ordinary course of a business or profession. You include interest on such sales in gross receipts.
You should maintain separate books and records for PA PIT purposes, and file PA Schedule C. If you wish to take advantage of the Pennsylvania reporting differences that decrease your federal profit, you must complete this PA Schedule C.

PA Schedule D
Line 5. Net Gain or Loss from the Sale, Exchange, or Disposition of Property

Report your gain or loss from each sale, exchange, or disposition of any kind of intangible property and any real or tangible property on PA Schedule D.

Important: PA law does not distinguish between long-term and short-term gain or have provisions similar to federal like-kind exchanges, casualty losses, sales to related parties, etc.

You may offset your own net gains and losses in determining this line. If you are married and you both have income or losses in this class, each should complete a Schedule D. Spouses cannot offset losses from the gains of the other spouse.

PA Schedule E
Line 6. Net Income or Loss from Rents, Royalties, Patents, and Copyrights

Report the total income or loss on Schedule E from:
Rental income including the amounts you receive for the use of, or the right to use, your real, or personal property.
Royalty income includes the amounts you receive for the extraction of coal, oil, gas, or other minerals in place, and
The amounts that you receive for the use of your patents, copyrights, secret processes, formulas, goodwill, trademarks, trade brands, franchises and similar property except:
Receipts from the sale, exchange, or other disposition of rental, royalty, and similar property. Report this transaction on Schedule D.
Receipts from operating an oil, gas, or mineral interest as a business, profession, or farm. Report this activity on a Schedule C.

PA Schedule J
Line 7. Estate or Trust Income

As a beneficiary of an estate or trust, report the total PA taxable income that the estate or trust is required to distribute, pay, or credit to its beneficiaries on PA Schedule J.

Filing Tip: Cash and property you acquire from an estate or trust by gift, bequest, devise, or inheritance is not subject to Personal Income Taxes.

As a beneficiary of an estate or trust, report the total income that you received or that the estate or trust credited to you. For PA PIT purposes, an estate or trust cannot distribute a loss, or offset income and losses in different PA income classes when determining the income to distribute to its beneficiaries.

PA Schedule T
Line 8. Gambling and Lottery Winnings

PA law imposes its income tax on PA residents on all gambling and lottery winnings from any source, except prizes from playing the PA Lottery. As a PA resident, you must include lottery winnings from other states and countries.
Prizes of the PA Lottery are not taxable.
You can deduct your gambling losses from your winnings. However, you may not deduct the cost of PA Lottery tickets from other PA taxable gambling and lottery winnings.
Do not deduct any expenses, such as travel, meals, lodging, etc. that you incurred to take part in gambling and lottery activities.
PA law does not tax nonresidents on winnings from gambling and lottery activities within Pennsylvania.
If you have losses to claim against winnings, submit a Statement Schedule showing your losses.

Line 9. Total Gross PA Taxable Income
This line is calculated for you.

Line 10. Contributions to your Tuition Account Program, PA ABLE Savings Account Program, Medical Savings Account, or Health Savings Account 
Taxpayers claiming deductions for IRC Section 529 Tuition Account Program contributions, IRC Section 529A PA ABLE Savings Account Program, Medical Savings Account or Health Savings Account must complete PA Schedule O.
Your contribution to a Tuition Account Program is limited to no greater than $14,000 per beneficiary, per taxpayer-spouse or the total taxable income of each taxpayer. 
Taxpayers claiming deductions for IRC Section 529A, PA ABLE Savings Account Program your contributions are limited to no greater than $14,000 per contributor per taxpayer or spouse.

Line 11. Adjusted PA Taxable Income
This line is calculated for you.

Line 12. PA Tax Liability
Line 11 will be multiplied by 3.07 percent (0. 0307). This line is calculated for you.

Line 13. Total PA Tax Withheld
This line is calculated for you based on what you entered on Schedule W-2S.
If your PA tax withheld is more than 3.07 percent, you must submit your Form W-2, or a legible photocopy, and a written explanation why your employer withheld more than 3.07 percent.

The Department may also request an explanation from your employer. If requested, this information can either be faxed to the Department at (717) 772-4193 or mailed to:
PA Department of Revenue
Bureau of Individual Taxes
Department 280507
Harrisburg, PA 17128-0507

Line 14. Credit from your 2016 PA Income Tax Return
Enter the amount you requested to be carried over as credit from your 2016 PA tax return.

Line 15. 2017 Estimated Installment Payments
Enter your total 2017 estimated payments.
Include your spouse’s 2017 estimated payments if filing jointly.
Do not include any payment of tax due made with a PA tax return.

To verify your 2016 carry over credit and 2017 PA estimated payments, review Estimated Payments.

Line 16. 2017 Extension Payments and Credits
Enter the amount of the payment you made with your 2017 extension request.

Line 17. Not available

Line 18. Total Estimated Payments and Credits
This line is calculated for you.

Tax Forgiveness Credit
Line 19a. Filing Status for Tax Forgiveness
Enter the status from Part A of your PA Schedule SP.
Line 19b. Dependent Children from PA Schedule SP Part B, Line 2
Enter the number of dependent children you are claiming from Part B, Line 2.

Line 20. Eligibility Income from PA Schedule SP Part C, Line 11
Enter your total eligibility income from Part C, Line 11 of your PA Schedule SP.

Line 21. Tax Forgiveness Credit from PA Schedule SP Part D, Line 16
Enter your credit from Part D, Line 16 of your PA Schedule SP.

Line 22. Not available

Line 23. Not available

Line 24. Total Payments and Credits
This line is calculated for you.

Line 25. Use Tax
This line is calculated for you.
This line is used to report purchases made over the Internet, through toll-free numbers, from mail order catalogs and from out-of-state locations, or any other occasion where sales tax was not charged and collected by the seller. For more information on Use Tax, see PA-40 booklet or access the Use Tax Help Filing Instructions.

Line 26. Tax Due
This line is calculated for you.

Line 27. Penalties and Interest
For more information on penalties and interest, see PA-40 booklet. To determine your penalty and interest amounts use the online P&I calculator.

Estimated Underpayment Penalty
The Department will send you a notice if we determine you owe this penalty. If you disagree with the Department's notice, you must submit Form Rev-1630 or REV-1630A to support your own calculation or claim for an exception.

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