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Line 2 - Interest Income

If your total PA-taxable interest income (taxpayer, spouse and/or joint) is equal to the amount reported on your federal return and you have no amounts for Lines 2 through 15 of PA Schedule A, you must report your income on Line 2 of the PA-40, but you do not have to submit PA Schedule A. If there are any amounts (taxpayer, spouse and/or joint) for any of the Lines 2 through 15 of PA Schedule A, you must complete and submit PA Schedule A with your PA-40. A taxpayer and spouse must complete and submit separate schedules to report their income if any amounts are reported on Lines 2 through 15. However, if all the income is earned on a joint basis, one schedule may be completed.

 

PA-taxable income includes interest from:

• Savings and loan associations

• Credit unions, even if reported as dividends on your statement

• Bank deposits

• Bonds (except as exempted)

• Certificates of deposit

• Interest-bearing personal checking accounts

• State, federal, local and foreign tax refunds

• Other deposits, investments, and obligations

• GNMA and FNMA certificates and other obligations that are guaranteed by the U.S. government, but not direct obligations of the U.S. government

• Obligations of other states or countries

• Mutual savings banks and cooperative banks, even if reported as dividends

 IMPORTANT: Also report on PA Schedule A:

• Income on life insurance contracts, annuities, or endowments if reported for federal income tax purposes.

• Income from charitable gift annuities included in federal gross taxable income as ordinary or capital gain income.

• Any amount paid out of an Archer Medical Savings Account or Health Savings Account that is includable in the gross income of an account beneficiary for federal income tax purposes. Included in this category are distributions used for any purpose other than to pay qualified medical expenses, any amount considered to be excess contribution distributions not previously included in income, or any amount of the account’s income attributable to excess contributions.

• Taxable amounts distributed from IRC Section 529 Qualified Tuition Programs for non-educational purposes. Please check our website at www.revenue.state.pa.us for more information on how to determine the taxable portion of any distributions for non-educational purposes.

PA-taxable income does not include interest from:

• Direct obligations of the U.S. government (U.S. Treasury Bonds, Notes, Bills, Certificates, and Savings Bonds)

• Direct obligations of the Commonwealth of Pennsylvania

• Direct obligations of political subdivisions of Pennsylvania

• Pennsylvania 529 College Savings accounts when earned or used to pay for Qualified Higher Education Expenses as defined in IRC Section 529 (e)(3)(A).

 Form Instructions

1. Enter the amount of interest income you reported on Line 8a of your federal Form 1040, or Form 1040A, or Line 2 of your federal Form 1040EZ.

2. Enter the total amount of tax-exempt interest income reported on Line 8b of your federal Form 1040, or Form 1040A.

3. Enter any other adjustments for items that increase PA-taxable interest income and provide a description of the amounts. If any expenses such as self-charged interest, amortization of bond premium, nominee interest, or expenses incurred to realize interest income were deducted against the income for federal income tax purposes, you must add them back here. 

4. Lines 1, 2 and 3 calculated automatically by padirectfile.

5. Interest income from federal Schedules(s) K-1 (This option is unavailable  to padirectfilers).

6. Enter the amount of your tax-exempt interest from direct obligations of the Commonwealth of Pennsylvania and/or direct obligations of political subdivisions of Pennsylvania. Include on this line any interest income from obligations issued by the commonwealth, a public authority, commission, board or other agency created by the commonwealth or political subdivision of the commonwealth. 

7. Enter the amount of any interest income from direct obligations of the U.S. Government (U.S. Treasury Bonds, Notes, Bills, Certificates and Savings Bonds). Do not include amounts from US obligations reported on federal Schedule K-1(s) or on Line 3 of federal Schedule B in this amount. 

8. Enter any other adjustments that decrease PA interest income and provide a description of the amounts. Examples include: interest income earned while a nonresident: interest on installment obligations that are included as gain on the sale of property for PA purposes; forfeited interest penalty; and amortization of bond premium. An example of the description for interest income earned while a nonresident would be “Non-Residency Period Interest”. Do not include expenses incurred to realize interest income. Include a statement providing the descriptions and amounts if more than one type of adjustment is included in the amount reported for this line. 

9. Lines 5, 6, 7 and 8 calculated automatically by padirectfile.

10. Subtracted Line 9 from Line 4 automatically by padirectfile.

11. Enter amounts reported on Form 1099-R with Box 7 codes 1, 2, 3 or 7 that also include code D.  Distribution from Life Insurance, Annuity or Endowment Contracts included in federal taxable income.

12. Enter the amount of charitable gift annuity income taxable for federal income tax purposes. 

13. Enter the amount of any distributions from IRC Section 529 plans that are for non-educational purposes. The cost recovery method must be used to determine the taxable amount for contributions made in tax years 2005 and earlier. The total amount of distributions claimed as deductions for tax years 2006 and later is taxable.  

14. Enter the amount of any distributions from Health/Medical Savings accounts included as Other income on Line 21 of your federal Form 1040.

15. Interest Income from PA S corporations and partnership(s), from your PA Schedule(s) RK-1 or federal Schedule(s) K-1. (This option is unavailable for padirectfilers)

16. Total PA-Taxable Interest Income. Lines 10 through 14 (Calculated automatically by padirectfile).

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