Pennsylvania's Tax Forgiveness Credit is designed to reduce or eliminate Pennsylvania income tax for qualifying taxpayers with lower incomes. The credit is calculated using Schedule SP and is based on eligibility income, filing status, and the number of qualifying dependents.
To enter this credit please follow this path: Pennsylvania Return > Credits > Schedule SP (Tax Forgiveness Credit)
Eligible taxpayers may qualify for:
- Full Tax Forgiveness
- Partial Tax Forgiveness
- No Tax Forgiveness
Even if you are unsure whether you qualify, it is generally recommended to complete Schedule SP.
Who Can Claim the Tax Forgiveness Credit?
You may qualify for the Pennsylvania Tax Forgiveness Credit if:
- You are a Pennsylvania resident, part-year resident, or qualifying nonresident.
- Your Eligibility Income falls within Pennsylvania's Tax Forgiveness guidelines.
- You meet the applicable filing status and dependent requirements.
The amount of Tax Forgiveness is determined using Pennsylvania's eligibility calculations and income tables.
What Is Eligibility Income?
Pennsylvania uses Eligibility Income, rather than Pennsylvania taxable income, to determine whether a taxpayer qualifies for Tax Forgiveness.
Eligibility Income includes both taxable and certain nontaxable income received during the year. Because of this, Eligibility Income may differ from the income reported as taxable on the Pennsylvania return.
Examples of Eligibility Income Include:
- Wages and compensation
- Interest income
- Dividend income
- Business income
- Rental income
- Gambling and lottery winnings
- Unemployment compensation
- Alimony received
- Cash public assistance
- Social Security benefits
- Support received from others
- Certain pensions and retirement benefits
- Other nontaxable income
How Do Dependents Affect Tax Forgiveness?
The number of qualifying dependents claimed on Schedule SP may affect Tax Forgiveness eligibility.
In general, taxpayers with qualifying dependents may qualify at higher income levels than taxpayers without dependents.
Who Is Considered a Qualifying Dependent?
A qualifying dependent may include:
- A qualifying child.
- A qualifying relative.
- Other individuals who meet Pennsylvania dependency requirements.
Only dependents who qualify for Schedule SP purposes should be included.
What Information Will I Need to Complete Schedule SP?
Taxpayer Eligibility Income
Review the taxpayer's Eligibility Income carefully. Some amounts may automatically transfer from information already entered on the return, while additional income may need to be entered separately.
Spouse Eligibility Income
If filing a joint Pennsylvania return, review and enter any additional Eligibility Income for the spouse that is required for the Schedule SP calculation.
Dependent Eligibility Income
If applicable, enter any dependent income required to be included in the Schedule SP calculation. Only income required by Pennsylvania's Tax Forgiveness rules should be reported.
Special Types of Income
Social Security Benefits
Although Social Security benefits are generally not taxable for Pennsylvania income tax purposes, they are included when determining Eligibility Income for Tax Forgiveness. Review all Social Security benefits received during the year and ensure they are included in the calculation.
Unemployment Compensation
Pennsylvania unemployment compensation is also included when calculating Eligibility Income for Tax Forgiveness purposes. Review all unemployment compensation received during the year and ensure it is properly reported.
Support Received
Support received from another person may be included in Eligibility Income.
Examples include:
- Financial assistance from family members.
- Cash support received from others.
- Other support payments.
Enter any required amounts when completing Schedule SP.
How Does Schedule SP Affect My Return?
Schedule SP may:
- Eliminate Pennsylvania income tax.
- Reduce Pennsylvania income tax.
- Increase a Pennsylvania refund.
- Reduce the amount owed with the return.
The amount of Tax Forgiveness depends on:
- Eligibility Income.
- Filing status.
- Number of dependents.
- Pennsylvania tax liability.
Important Information
- Tax Forgiveness is based on Eligibility Income, not Pennsylvania taxable income.
- Eligibility Income includes certain taxable and nontaxable income.
- Social Security benefits and unemployment compensation may be included when calculating Eligibility Income.
- Taxpayers with qualifying dependents may qualify at higher income levels.
- Completing Schedule SP does not guarantee eligibility for Tax Forgiveness.
- Keep documentation supporting all income reported on Schedule SP with your tax records.
For more information about PA Schedule SP, please click here.