Personal Individual Tax Preparation Guide - For Personal Income Tax Returns PA-40

90 Pages·2017·1.23 MB·English

PERSONAL INCOME TAX
PREPARATION GUIDE
FOR PERSONAL INCOME TAX RETURNS
PA-40
DFO-02 (EX) 12-19
PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
WHAT’S NEW Return. Although it may also be used by individual
taxpayers who prepare their own PA-40, the prepa-
Instructions were added to the Married, Filing
ration guide was written using language from a
Jointly (J) filing status on Page 17 to clarify that
preparer’s perspective.
taxpayers with EITC, OSTC and REAP tax credits
may file using the Married, Filing Jointly status. Before reviewing how to assist taxpayers in the
preparation of the PA personal income tax return,
Various forms and schedules were revised by the
some key principles must be emphasized.
department to identify areas on the documents as
Sections instead of Parts. The references to those
CONFIDENTIALITY AND INTEGRITY
areas included throughout these instructions were
As a tax preparer through the Volunteer Income
also changed accordingly. In addition, the depart-
Tax Assistance (VITA) and Tax Counseling for the
ment now uses Roman numerals to identify the
Elderly (TCE) programs, you have a special trust
areas instead of letters or Arabic numbers.
from the taxpayers who seek your help. To maintain
PA-40 Schedule W-2S, Section II, Column C, now the integrity of this program and to respect the
requests the Payer’s FEIN instead of the Payer’s trust placed in you, tax information must be treated
Name. as confidential at all times. Also remember that
VITA/TCE tax preparers are prohibited from
Taxpayers with distributions from a KSOP, must
accepting compensation from taxpayers for prepar-
now include a copy of the plan with the fling of
ing PA personal income tax returns.
their tax return.
The 1099-R Code 9 information on Page 32 was QUALITY SERVICE
revised to Include that distributions identified as Quality service to taxpayers is our goal. It is impor-
PS-58 costs are taxable for PA PIT purposes. tant to check your work for accuracy. Use a
calculator to verify mathematical calculations. If
The meals and entertainment expenses line on
you are uncertain of the proper method of reporting
PA-40 Schedule UE was divided into two lines and
any transaction, consult your immediate supervisor.
separate instructions are now included for those
lines. Your success as a tax preparer largely depends on
your ability to establish rapport with taxpayers and
Instructions were added that taxpayers with use tax
interview taxpayers effectively. First, it is important
on utilities should use the online PA-1 to file and pay
to put the taxpayer at ease. You will ask questions
their use tax.
to determine not only tax liability but also benefits
The PA Schedule D-71 instructions included on and credits. For example, many taxpayers are not
Pages 50 and 51 were updated as a result of the aware of the special tax forgiveness provision or
reformatting of the form and instructions to meet the exclusion of a gain realized on the sale of a
the department’s new standards. principal residence. If filing a paper return, you
should have the taxpayer sign and date the return
Instructions were added to require copies of PA-41
upon completion and provide them with the proper
Schedule NRK-1 be included with the filing of the
address to which the return should be mailed.
PA-40 when a nonresident trust has nonresident
withholding.
INTERVIEWING TECHNIQUES
Taxpayers who received preprinted PA-40 ES Introductory Stage
coupons from the department will not be mailed It is important to establish a good relationship with
the 2020 coupons. See Page 59 for additional the taxpayer. Greet the person you will be helping
information. in a friendly way and introduce yourself. Smile and
make eye contact. If anyone has waited for a long
PURPOSE
time, apologize for the delay. Many people are nerv-
The Personal Income Tax Preparation Guide’s ous when it is time to prepare their income tax
purpose is to provide volunteer preparers and return, so take a few minutes to chat informally if
Department of Revenue Field Office personnel with necessary. Remember, good humor and a readi-
additional information and instructions for the ness to help is the essence of courtesy. If a taxpayer
preparation of the PA-40, Personal Income Tax starts complaining, do not take it personally. Listen
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
to the entire complaint. Do not interrupt as that will Department of Revenue. Instruct taxpayers
only make the taxpayer more upset. to include the last four digits of their primary
Social Security number (SSN) and tax year on
Questioning Stage
the front of the check or money order. If a
As an interviewer, you must control the conversa-
Form PA-40 V is not available from the software
tion and keep the taxpayer from asking unrelated
used by the preparer or one is not prepared
questions. It will be helpful to follow these guide-
from the Fill-In PA-40 V on the department’s
lines:
website, the department advises each taxpayer
• Phrase questions very clearly, avoiding multi-
to use the complete SSN on the check or
ple questions.
money order if faster clearing is desired and
• Repeat questions if necessary. Keep in mind more accurate posting of the check is preferred.
not everyone understands technical tax terms. Otherwise, it can take up to four weeks for a
check to clear if there is insufficient information
• Listen carefully to the taxpayer’s responses
such as taxpayer name, address, and tax year
and be patient.
on the check. In the event the department
• To the extent possible, explain the return as it
cannot determine the correct account for
is completed.
posting of the check, the taxpayer’s account
• Encourage people to ask questions if they do will eventually be billed and additional corre-
not understand. spondence will need to be addressed by the
• If you cannot answer a question, say "I do not taxpayer. If your volunteer site e-files returns
know but will find out." using special software, the taxpayer may
be able to remit the tax payment online. See
• Research difficult questions in available tax
PAYMENT OPTIONS beginning on Page 72
books, consult with your immediate supervisor
for additional information.
or contact your local Department of Revenue
district office. • If a paper return is being prepared, instruct the
taxpayer to mail the return by midnight on the
NOTE: Questioning can be effective in determining
due date, along with any monies due.
sources of income. However, it is the taxpayer who
• If filing more than one tax return for a tax-
is responsible for the accuracy of the information
payer, advise the taxpayer to mail each return
provided. You, as a preparer, are not accountable
separately.
for any misinformation given by the taxpayer.
• Ask if the taxpayer has any questions. Be sure
Summary Stage
to return all tax materials to the taxpayer, and
When the return(s) is/are completed, you will need
give the taxpayer a copy of the filed return to
to give the taxpayer some additional information.
keep with his/her records.
• Have the taxpayer sign and date the return. If
• Thank the taxpayer and remember to respect
filing a paper return and the filing status on the
the taxpayer's privacy. Keep all tax information
return is Married, Filing Jointly, make sure
confidential.
both taxpayers sign the return. If one taxpayer
is not present, remind the taxpayer to have
TAX ASSISTANCE GUIDELINES
his/her spouse sign the return.
When assisting a taxpayer with the preparation
• If there is an overpayment and the taxpayer of a tax return, you should not hesitate to contact
plans to move, advise the taxpayer to notify your immediate supervisor for guidance. Our main
the local Department of Revenue district office objective is to provide quality service, which can
immediately to have the address updated. This only be achieved by working together.
will ensure the refund is sent to the appropri-
ate address. The post office may not forward FEDERAL/STATE ELECTRONIC
refund checks. FILING (e-file)
• If a balance is due, advise the taxpayer of Taxpayers may file federal and PA income tax
payment options. Payment may be remitted by returns electronically, either through a tax preparer
check or money order made payable to the PA or by purchasing software.
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
VITA/TCE sites that e-file returns using special soft- ADDITIONAL INFORMATION
ware should mail Form PA-8453 or PA-8879 to the
FOR EROS
following address:
The department requires all PA electronic returns to
PA DEPARTMENT OF REVENUE be accepted by the Internal Revenue Service (IRS).
BUREAU OF INDIVIDUAL TAXES Once accepted by the IRS, the ERO does not have
ELECTRONIC FILING SECTION
to register separately with the PA Department of
PO BOX 280507
Revenue.
HARRISBURG PA 17128-0507
ACKNOWLEDGEMENT OF
These forms should be submitted to the department
PA ELECTRONIC RETURNS
at the end of the tax preparation season with a note
stating they are from a volunteer site. A PA-8453 is The Pennsylvania Department of Revenue will
not required if a taxpayer signs the federal return acknowledge the receipt of a return. However, the
with a federal self-select PIN and that PIN is carried acknowledgement system will now only inform a
over to the PA return. If the practitioner’s PIN is taxpayer if a return was accepted or rejected. If a
being used or someone else other than the tax- return is rejected, the rejection message will iden-
payer is entering the taxpayer’s PIN on the federal tify the reject as a business rule or schema error
return, PA-8879 must be signed. The PIN does not only. Refer to software instructions or contact the
need to be entered twice and can be carried over software representative for information regarding
from the federal return as long as the taxpayer responsibilities for accessing and retrieving state
understands he/she is signing both returns. acknowledgements.
The department also allows statements to be filed
ACCEPTED PENNSYLVANIA
electronically through the electronic return origina-
FORMS/SCHEDULES
tors (ERO) with the return. These statements
The following Pennsylvania forms may be trans-
describe why certain income was or was not
mitted electronically (refund, equal and balance
reported or why a particular paper document is
due, with or without payment), and payment must
being retained by the ERO (i.e. military orders,
stipend, extension form). be made by electronic funds withdrawal, check,
money order or credit card.
Electronic filing provides the following benefits:
• Form PA-40 - Pennsylvania Individual Income
• Accuracy. Computer programs catch mistakes
Tax Return (includes nonresident and Part-
before they become problems.
Year Resident returns)
• Acknowledgement. The department elec-
• PA Schedule A - Interest
tronically notifies the preparer or ERO that the
• PA Schedule B - Dividends
return was received and accepted.
• PA Schedule C - Profit or Loss From Business
• Refunds. With electronic filing, the taxpayer
or Profession
has the option to receive a refund via direct
deposit. This service is not available when • PA Schedule D - Sale, Exchange or Disposi-
filing a paper return. tion of Property
• PA Schedule D-1 - Computation of Installment
• File Now, Pay Later. A return can be filed
Sale Income
anytime before the due date. If tax is owed,
payments may be made by authorizing an • PA Schedule D-71 - Sale or Exchange of Prop-
electronic funds withdrawal. This withdrawal erty Prior to June 1, 1971
can be scheduled for a later date and may be
• PA Schedule E - Rent, Royalty, Patent and
paid from the taxpayer’s checking or savings
Copyright Income or Loss
account. The taxpayer may also choose to
• PA Schedule F - Farm Income and Expenses
remit payment via check or money order with
• PA Schedule G-L - Out-of-State Credit, Long
Form PA-40 V, Payment Voucher, which should
Form
be mailed by midnight on the due date of the
return. • PA Schedule J - Estate & Trust Income
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
• PA Schedule W-2S - Wage Statement • Returns containing forms/schedules not listed
Summary under federal forms; or “Accepted Pennsylva-
• PA Schedule SP - Tax Forgiveness Credit nia Forms/Schedules”.
• PA Schedule RK-1- Resident Schedule of PA NOTE: Electronic filing of Form PA-41 is only avail-
S Shareholder/Partner Pass-Through Income, able through some paid preparers but is not
Loss and Credits available by department or volunteer tax
• PA Schedule NRK-1- Non-Resident Schedule preparers. Electronic filing of Form PA-20S/
of PA S Shareholder/Partner Pass-Through PA65 S Corporation/Partnership Information
Income, Loss and Credits Return is available from most paid preparers
• PA Schedule UE - Allowable Employee Busi- but is not available by department employees
ness Expenses or volunteer tax preparers.
• PA Schedule OC
CONTACT INFORMATION FOR
• PA Schedule O
E-FILE INQUIRIES
• PA Schedule P
The PA Department of Revenue has telephone
• PA Schedule T - Gambling and Lottery
lines for exclusive use by EROs, transmitters and
Winnings
software developers participating in the Federal/
• PA REV-1630 - Underpayment of Estimated
State e-file program. The operating hours are Mon-
Tax by Individuals
day through Friday, 7:30 a.m. to 5:00 p.m. (except
• PA REV-1630A - Underpayment of Estimated holidays).
Tax by Farmers
NOTE: The following phone number is not to be
• PA Schedule 19 - Sale of a Principal
provided to taxpayers.
Residence
Help Desk 717-787-4017.
• PA Schedule NRH - Apportioning Income by
Nonresident Individuals You may forward correspondence for the electronic
filing program to the following address:
• Schedule PA-40 X Amended Schedule
PA DEPARTMENT OF REVENUE
• W-2 Forms
BUREAU OF INDIVIDUAL TAXES
• 1099-R Forms
PO BOX 280507
• W-2G Forms HARRISBURG PA 17128-0507
FAX: [phone] or 717-787-2840
NOTE: Federal K-1s are not supported in PA e-File
software. However, software packages that offer pdf You may also fax information concerning electron-
file attachments can include the federal K-1 and its ically filed returns to the department using the
related supporting statements via pdf file with the
Personal Income Tax Correspondence Sheet, DEX-
return if the income and losses from that K-1 are
93, which is also available from the Department of
also input into the return.
Revenue’s website, www.revenue.pa.gov. The fax
cover sheet includes the proper fax numbers for
EXCLUSIONS FROM
providing specific information regarding electroni-
ELECTRONIC FILING
cally filed returns. Using the fax cover sheet
The following documents are excluded from Fed-
enables the department to more quickly and accu-
eral/State electronic filing:
rately attach information to the correct taxpayer’s
• Non-calendar, fiscal year returns; return and further allows for faster turnaround times
• Amended individual income tax returns for for processing of taxpayer correspondence.
years prior to 2010;
For a full explanation of the Federal/State e-file
• Form PA-40 NRC - Nonresident Consolidated program, please review the Pennsylvania Fed/State
Income Tax Returns;
E-file Handbook, REV-993. This booklet may be
• Form PA-40 KOZ – PA Income Tax Keystone downloaded from the Department of Revenue’s
Opportunity Zone Return; website, www.revenue.pa.gov.
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
FORM PA-40 GENERAL Determining Residency
An individual may have to pay income tax as a PA
INSTRUCTIONS
resident even if he or she is not considered a PA
Filing Due Date
resident for other purposes. For income tax pur-
The due date for filing the PA personal income tax
poses, one must consider both where he or she
return is the same due date as it is for federal
is domiciled and where he or she maintained a
income tax returns. Generally, that date is April 15
permanent place of abode during the taxable year.
or the next business day if the 15th falls on a
Saturday, Sunday or holiday. If the IRS determines An individual’s domicile is their fixed and permanent
that Emancipation Day for Washington, DC is a home to which they always have the intention of
holiday, the due date will be the next business day returning whenever absent, even though they may
after the holiday.
live elsewhere. An individual can have only one
state of domicile at any given time. Below are some
Extension
A taxpayer may request an extension of time to file, factors to consider when determining an individual’s
however this does not extend the payment dead- place of domicile:
line. If the taxpayer anticipates a tax balance due, • Where does the taxpayer spend the greatest
he/she should submit payment with the extension amount of time during the taxable year?
request.
• Where does the taxpayer maintain a perma-
Extensions may be requested in two ways: nent abode for the longest amount of time
• The taxpayer can submit Form REV-276, during the taxable year?
Application for Extension of Time to File, post- • Where does the taxpayer support his or her
marked on or before the April 15 due date.
spouse and children?
• The taxpayer may submit a copy of a federally
• Where does the taxpayer purchase the neces-
approved extension of time to file with his/her
sities of life?
state return.
• Where does the taxpayer have doctors,
An extension grants an individual an additional six lawyers and accountants?
months to file a return. People outside the country
• Where does the taxpayer house his or her
are automatically granted a two-month extension to
pets?
file by June 15.
• Where does the taxpayer have active banking
Who must file?
accounts?
Any PA resident, nonresident or part-year resident
who: • Where does the taxpayer worship regularly?
• Received total PA gross taxable income in • Where does the taxpayer participate in social,
excess of $33 during the tax year, even if no fraternal or athletic organizations, lodges or
tax is due; and/or country clubs?
• Incurred a loss from any transaction as an • Where does the taxpayer have works of
individual, sole proprietor, partner in a part- art, expensive furniture, family portraits or
nership or PA S corporation shareholder. heirlooms?
Minors. PA law does not exempt a minor from the • Where does the taxpayer fulfill local tax
above requirements to file a PA tax return even obligations?
if the minor is claimed as a dependent on a federal
• Where is the taxpayer employed?
return. A parent must file a return on behalf of the
• Where does the taxpayer own real estate fit for
minor child in such circumstances.
year-round living?
Decedents. The executor, administrator or other
• Where does the taxpayer maintain a driver's
person responsible for the affairs of a decedent
license and vehicle registration?
must file a PA tax return on behalf of the decedent
if the decedent could not or did not elect to file a • Where does the taxpayer maintain profes-
joint return with a surviving spouse. sional licenses?
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
• Where does the taxpayer maintain union mem- not dependent upon continuous physical presence.
bership? It is not abandoned by absence or even by presence
in a former domicile, no matter how long continued,
• Where does the taxpayer declare residency
if, in leaving and during the absence, there is not
for fishing or hunting licenses, income tax re-
firm, sincere, unconditional intention of remaining in
turns or school tuition?
the other jurisdiction for an indefinite and uncertain
• Where does the taxpayer conduct his or her
period.
business?
For example, temporary absence from a new domicile
• Where does the taxpayer receive mail?
in a former domicile for the purpose of transacting
• Where does the taxpayer receive unemploy- business or for the sake of health, pleasure, or
ment? education, with a definite intention of returning to the
new domicile does not affect a person's domiciliary
• Where does the taxpayer record his or her
status.
address for insurance policies, deeds, mort-
gages, leases, passport, federal and local tax A retired couple with two permanent homes, one
returns, etc.? inside Pennsylvania and one outside of Pennsylva-
nia, can only have one state of domicile. The state
• Where was the taxpayer domiciled at birth?
of domicile does not change until there is a move to
• Where does the taxpayer maintain safe
another state or country with the sincere intention of
deposit boxes?
making a "new" permanent home there and aban-
• Where does the taxpayer own a cemetery plot? doning the previous domicile. The determination as
to their state of domicile should be made based on
• Where is the taxpayer listed in the telephone
the factors above.
directory?
A permanent abode is a house, apartment, dwelling
• Where has the taxpayer obtained a homestead
place or other residence an individual maintains as
exemption?
his or her household for an indefinite period, whether
• Where does the taxpayer gather for family and
he or she owns it or not. An abode is not permanent
social events?
if it is occupied only during a fixed or limited period
• Where is the taxpayer registered to vote? of time for a particular purpose. Barracks, bachelor
officer's quarters, quarters on ships and other living
In order to establish a new domicile, the following
accommodations provided by one’s employer for a
three conditions must be met:
definite period do not qualify as permanent dwelling
• There must be evidence of a firm and definite places; nor do college dormitories, fraternity houses,
present intention to discontinue making the for- sorority houses and off campus rentals by enrolled
mer domicile one’s primary base of operations; college students qualify as a permanent abode.
• There must be evidence of a firm and definite
PA Resident
present intention to make the new domicile Residency in Pennsylvania, for tax purposes, may
one’s primary base of operations; and be established in two ways:
• There must be evidence of actual physical Domicile in Pennsylvania: If an individual is
presence and actual abode (transient, tempo- domiciled in Pennsylvania, he or she is con-
rary or permanent) in the new location. sidered a resident unless he or she meets all
three of the following conditions:
If all three requirements are met, the date of the
• He or she did not maintain a permanent
change is the first day of actual physical presence in
abode in Pennsylvania for himself/herself or
the new location.
his/her family;
If an individual left their domicile to seek new
• He or she did maintain a permanent abode
employment and intended to remain in the other
outside Pennsylvania throughout the entire
location only if they were to find employment, there
taxable year; and
is no change in domicile.
• He or she did not spend in the aggregate
Once established in a locality or state, the domicile more than 30 days of the taxable year in
continues there until a new one is established. It is Pennsylvania.
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
Day Test: If an individual maintains a perma- any PA-sourced income that he/she may have
nent abode in Pennsylvania and spends a earned. Under the Military Spouses Residency
total of 183 days or more of the taxable year Relief Act, income earned by the spouse of a serv-
in Pennsylvania, even though he or she is not ice member shall not be considered taxable income
domiciled in the commonwealth, he or she is in the state that the service member is stationed if
considered a resident. that state is not considered the spouse’s state of
residence or domicile.
Nonresident
An individual is a nonresident for PA tax purposes If a service member is a PA resident serving outside
if he/she is not a resident as defined above. of the Commonwealth of Pennsylvania and his/her
spouse realizes income in that other state, the
After determining the location with the greatest con-
spouse’s income is only taxable to PA (if the spouse
nection, it is necessary to see if a new domicile
maintains his/her PA residency). A resident credit
outside of Pennsylvania has been established.
will not be allowed for taxes paid to the other state.
Part-Year Resident
If the spouse receives income subject to employer
A part-year resident is an individual who moved to
withholding, he/she should request a refund of that
or from Pennsylvania during the taxable year with
withholding from the other state.
the intent of permanently changing domiciles. A
If the service member is a nonresident serving
person moving into Pennsylvania, with the intent of
inside the Commonwealth of Pennsylvania and
residing here permanently, becomes a resident on
the first day he or she is actually, physically present his/her spouse realizes income in PA, that income
in the Commonwealth, regardless of reason or is not taxable to PA as long as the spouse is con-
housing arrangement (such as employer provided sidered a resident of another state. If the spouse
housing, living with relatives, etc). receives income subject to employer withholding,
he/she should request a refund of that withholding.
Persons in the Military or Foreign Service
This may be done by filing a PA personal income
Unless there is an intention to change domiciles, a
tax return and only reporting the PA tax that was
person generally neither acquires a new domicile by
withheld (shown in Box 17 of the W-2). They must
entering the armed forces nor loses the domicile
also provide a copy of their spouse’s military orders
that the person had upon entering. A person on mil-
showing they were ordered to service in PA, and a
itary duty is not prohibited, however, from acquiring
copy of their resident state’s driver’s license.
a new domicile where his or her family is stationed.
A person in the military and foreign service, or liv- College Student
ing in a foreign country for other than a temporary Generally, a child has the same domicile as his or
or transitory purpose while a lawful permanent her parents or legal guardian. Becoming a legal
resident or citizen of the country, is treated as a adult does not by itself separate a child from the
domiciliary of that country if the person: parent or legal guardian’s domicile. The child
• Is not an employee of the U.S., its agencies or merely acquires the power to establish a separate
instrumentalities (including members of the or new domicile.
armed forces and career appointees in the
Minor Child
U.S. foreign service); and
The domicile of a minor child is the same as the
• Does not hold an appointive office in the ex-
domicile of the child's parents. If the parents are
ecutive branch of the government of the U.S.
separated, the child's domicile is the domicile of the
However, special rules may apply if the employee parent with whom the child lives or that of the child's
or officer maintains a permanent place of abode legal guardian.
there. An individual who is domiciled in Pennsylva-
Dual Residency
nia is considered a nonresident if he or she meets
A dual resident is an individual who is considered
all three of the requirements listed in the prior
a resident of two states for taxing purposes. If an
sections on Pennsylvania residency and domicile.
individual is a dual resident, he or she should report
For tax years 2008 and prior, the spouse of a serv- the income that was earned during the taxable year
ice member serving in Pennsylvania was taxed on from sources both within and outside of PA on
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PERSONAL INCOME TAX PREPARATION GUIDE www.revenue.pa.gov
both states tax returns. This individual would then • Net Income or Loss from the Operation of
request a resident credit for income sourced to the a Business, Profession or Farm
state of statutory residence in the state that he/she Pennsylvania taxes nonresident owners on all
is domiciled in. allocated, or apportioned, income from the
operation of a business entity in Pennsylvania.
NOTE: Special rules apply for PA residents working
If an individual derives income from sources
in states with reciprocal tax agreements with Penn-
inside and outside Pennsylvania, separate
sylvania: Indiana, Maryland, New Jersey, Ohio,
accounts and records that clearly reflect the
Virginia or West Virginia. If a taxpayer is a PA
PA business activity should be maintained.
resident and also a resident of a reciprocal state, for
income tax purposes he/she may claim the PA Otherwise, that individual must file PA Sched-
resident credit. The reciprocal agreement with these ule NRH to apportion the income.
states is not applicable since the taxpayer is subject
• Net Income or Loss from the Sale,
to tax as a resident in both Pennsylvania and the
Exchange or Disposition of Property
other state. The taxpayer must file PA Schedule
Pennsylvania taxes nonresidents on the gain
G-L for each state for which a resident credit is
from the sale of any real or tangible personal
being requested and enclose a copy of the resident
property located in Pennsylvania. Pennsylva-
tax return filed with the other state. This documen-
nia does not tax nonresidents on the gain from
tation will serve as proof that the other state taxed
the disposition of intangible property nor allow
him/her as a resident in that state and did not allow
the use of any loss from such a disposition to
a credit for tax paid to PA.
reduce other PA taxable gains. If a taxpayer
For example, Dan is a domiciliary of Pennsylvania sells property in his or her former state before
for the entire taxable year. He leased an apartment
moving into Pennsylvania, no gain or loss on
in Maryland and worked 230 days in Maryland.
that sale is reportable to PA. However, if the
Maryland considers Dan to be a Maryland resident
taxpayer moved from Pennsylvania to another
for income tax purposes. He earned $10,000 in
state and then sold property or any other tan-
compensation for working in Maryland. Dan must
gible property in Pennsylvania, the gain must
report his compensation as PA-taxable income.
be reported.
Because he is a PA domiciliary, Dan may claim the
• Income or Loss from Rents, Royalties,
PA resident credit for taxes paid to Maryland as long
Patents and Copyrights
as he does not claim a credit on his Maryland return
Pennsylvania taxes nonresidents on the net
for taxes paid to PA.
income from the use of property located or
How Residents are Taxed
used in Pennsylvania.
A PA resident is taxed on all taxable income
• Interest on Installment Sales
received from sources inside and outside
Pennsylvania taxes nonresidents on interest
Pennsylvania.
from Installment Sales as PA Schedule D-1
A PA resident may claim a resident credit for any tax
Income.
imposed by and paid to other states based upon
income which is not from Pennsylvania sources • Interest on Business Accounts
and is subject to PA personal income tax. The PA Pennsylvania taxes nonresidents on interest
Schedule G-L must be completed to claim this on business accounts such as accounts
credit. receivable or a business checking account
that is included in business income.
How Nonresidents are Taxed
Nonresidents are taxed on the following types of • Mortgage or Security Interests
income derived from sources within Pennsylvania: Pennsylvania taxes nonresidents on mortgage
• Compensation or security interests on installment sales that
Pennsylvania taxes nonresidents on compen- are reported as such utilizing PA Schedule
sation for services performed in Pennsylvania, D-1. If PA Schedule D-1 is not used and the
unless the taxpayer is a resident of one of the entire gain is reported in the year sold, interest
reciprocal agreement states. on an installment sale is not subject to tax.
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