Pennsylvania income not already included in gross income carried or designated as Pennsylvania income.
W-2 wages and 1099-R IRA/Pension distributions, entered with Pennsylvania information included in the state sections are automatically included in your Pennsylvania gross compensation. You must be sure to list Pennsylvania in the state section and include the state wages or state distribution, if applicable,** to carry to your state return. In addition to interest, dividends, business and rental income, gambling and lottery winnings and income reported on Form 1099-Misc taxable to Pennsylvania, below are additional items of taxable income that must be added.
- Employer provided fringe benefits, unless excludable
- Sick pay and disability benefits that represent regular wages, such as sick leave pay
- Allowances and reimbursements in excess of allowable employee business expenses
- The value of property received as payment for services
- Delay damages received in connection with a court judgment or settlement to the extent that the payments represent back wages
- Compensation as fees for performing services as an executor or an administrator of an estate or a director of a corporation.
- Severance pay
- Incentive payments received for terminating employment before reaching normal retirement age
- Awards and gifts given in recognition for, or given as a transfer of cash or property, in payment for past, present, or future service as an inducement to perform future services
- Jury fees
- Expert witness fees
- Cash reimbursements for personal expenses, such as commuting and day care
- A discharge of indebtedness, unless specifically excludable from taxable income
- Damage awards and settlements to the extent that the payments represent back wages or another uncollected entitlement to Pennsylvania taxable income
- Covenants not to compete, or for refraining from the performance of services
- Other income described in the Pennsylvania income classes in the Individual Tax Guide
- Income for performing services as an executor or director when such services are undertaken as part of your business or profession (report this addition under Business and Rental Income/(Loss))
Exceptions to taxable IRA/Pension distributions:
1. Payments you receive after you qualify for retirement and retire.
2. Payments you receive that you rollover into another deferred payment program or retirement IRA, but only when the transferred amounts are not taxable income for federal purposes.
3. Distributions from an employer-sponsored deferred compensation plan that represent your previous contributions.
4. Payments paid to the estate or designated beneficiary upon an employee’s death are not PA-taxable income on the employee's final PA-40 or on the decedent’s estate or trust PA-41, PA Fiduciary Income Tax Return or on the beneficiary’s PA-40.
5. All distributions (regardless of the distribution code reported in Box 7 of the 1099-R) from the State Employees’ Retirement System, the Pennsylvania School Employees’ Retirement System, the Pennsylvania Municipal Employees’ Retirement System, and the U.S. Civil Service Commission Retirement Disability Plan.
6. Retired or retainer pay of a member or former member of a uniform service computed under Chapter 71 of Title 10, U.S. Code as amended.
7. IRA distributions received, including lump sum distributions, on or after reaching the age of 59 1/2.
8. IRA distributions paid to the estate, or designated beneficiary, of the participant because of the participant’s death.