PA-40 -- Part B

pa.direct.file
www.revenue.state.pa.us
The fast, easy and safe way to file your 
PA Personal Income Taxes Online - anytime.
 
Close Window
 pa.direct.file
www.revenue.state.pa.us   Help - Filing Instructions
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 
1a  Gross Compensation 
Salaries, wages tips and gratuities, bonuses, commisions, incentive payments, vacation and holiday pay, termination pay, and taxable distributions from a retirement account. 
PA Schedule W-2S
2 Interest Income Amounts from Forms 1099-INT and similar statements from financial institutions. Report the taxable portion of any contracts of insurance and annuities, including a personal retirement annuity. Report all taxable interest. PA Schedule A - complete only if your interest income is greater than $2500.
3 Divident Income Amounts from Forms 1099-DIV and similar statements from financial institutions. Cash and property distributions. Report all taxable dividends. PA Schedule B - complete only if your dividend income in greater than $2500.
4 Net Income (Loss) from the Operation of a Business or Profession Net profit or loss from the operation of a business or profession classified as a sole proprietor, independent contractor, or sole member of an LLC. PA Schedule C or PA Schedule C-EZ
5 Net Gain (Loss) from the Sale, Exchange, or Disposition of Property Net gain or loss from the sales, exchanges, and dispositions of non-business property and assets. PA Schedule D
6 Net Income (Loss) from Rents, Royalties, Patents, or Copyrights Net income or loss from the use of real or tangible property by others, royalties received for the extraction of coal, oil, gas, or minerals, or for the use of patents and copyrights. PA Schedule E
7 Estate or Trust Income Income received as a beneficiary of an estate or trust. Losses are not reported. PA Schedule J
8 Gambling and Lottery Winnings Gambling and lottery winnings from other states and countries. This also applies to non-residents who have PA-source gambling winnings. Prizes from the PA Lottery are not taxable for PA residents or non-residents. PA Schedule T
 
 
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:
  • Salaries
  • Wages, tips, gratuities
  • Commissions and bonuses
  • Incentive payments
  • Vacation and holiday pay, and
  • 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 or C-EZ 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. (For more information on taxable income see the PA-40 pgs. 12-14 & 25)
 
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:
  • Indiana
  • Maryland
  • New Jersey
  • Ohio
  • 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
  • Honorariums
  • 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.
 
(For specific information concerning pensions and retirement income see the PA-40 pgs. 12 - 14)
 
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.
    (For more information  on reimbursements see the PA-40 pgs. 26 -29)
 
Line 1c. Net Compensation
Line 1a less Line 1b. This amount is automatically calculated for you.
 
PA Schedule A
Line 2. Interest Income

Generally, Forms 1099-INT and similar statements from financial institutions show the interest amount. While you have to report all taxable interest income regardless of the amount,
If your interest income is less than $2,500, enter the amount of interest directly on Line 2.
If your interest income is more than $2,500, complete and submit PA Schedule A.
 
PA Schedule B
Line 3. Dividend Income

Generally, Forms 1099-DIV and similar statements show the dividend amount. While you have to report all taxable dividend income regardless of the amount,
If your dividend income is less than $2,500, enter the amount of dividends directly on Line 2.
If your dividend income is more than $2,500, complete and submit PA Schedule B.
 
PA Schedule C-EZ
Line 4. Net Income from the Operation of a Business or Profession

Independent contractors, unincorporated businesses, or sole proprietors who do not have employees can report their business income using the PA Schedule C-EZ if you:
Had business expenses of $5,000 or less.
Use the cash method of accounting.
Did not have an inventory at any time during the year.
Do not deduct expenses for business use of your home.
Are not required to file expenses for depreciation and amortization for this business.
Did not have a net loss from your business.
Had only one business as a sole proprietor. (If you are filing a joint return, you are allowed to file two Schedule C-EZ’s on pa.direct.file, one for you and one for your spouse.)
PA Schedule C
Line 4. Net Income from the Operation of a Business or Profession
 
Sole proprietors, who cannot use a PA Schedule C-EZ to report their business income, may use PA Schedule C to report income or loss from a business you operate, or a profession you practice.
 
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 taxes residents on all gambling winnings and lottery winnings from other states and countries, except prizes from playing the PA Lottery.
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 Contributions, or Medical Savings Account, or Health Savings Account (IRC Section 529 Plan)
Taxpayers claiming deductions for IRC Section 529 Tuition Account Program contributions, 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 $12,000 for each taxpayer for each beneficiary or the total taxable income of each taxpayer.
 
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 2008 PA Income Tax Return
Enter the amount you requested to be carried over as credit from 2008 to the 2008 tax year.
 
Line 15. 2008 Estimated Installment Payments
Enter your total 2008 estimated payments.
Include your spouse’s 2008 estimated payments if filing jointly.
Do not include any payment of tax due made with a PA tax return.
To verify your 2008 carry over credit and 2008 PA estimated payments, review Estimated Payments.

Line 16. 2008 Extension Payments and Credits
Enter the amount of the payment you made with your 2008 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
 
Line 19b. Dependent Children from PA Schedule SP Part B, Line 2
 
Line 20. Eligibility Income from PA Schedule SP Part C, Line 11
 
Line 21. Tax Forgiveness Credit from PA Schedule SP Part D, Line 16
 
Line 22. Not available
 
Line 23. Not available
 
Line 24. Total Payments and Credits
This line is calculated for you.
 
Line 25. Tax Due
This line is calculated for you.
 
Line 26. 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 a From Rev-1630 to support your own calculation or claim for an exception.
 
 Previous Topic  Next Topic  
  X Close Window