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Pennsylvania taxabilty of pensions

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Pennsylvania taxabilty of pensions  Reply with quote  

I'll certainly check with the Pennsylvania Dept of Revenue for an official answer to this question, but I'll also ask it here, in case others already know the answer.

I've read more than once, in popular money and investing related magazines, that PA exempts all pensions from PA income tax. I don't believe it. I get small pension incomes from two former employers. Nothing on my 1099-Rs from either of those employers suggests that I do NOT have to report such income and pay PA tax on it. I use TaxCut to do my PA taxes, and it NEVER gives me a way NOT to include the pension income I get in my PA taxable income.

I can't believe the publications know things the PA Dept of Rev doesn't. Does anyone KNOW the real answer?
Post Sat Dec 01, 2007 9:08 pm
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If TaxCut prepares a state return, like TurboTax does, then you can trust what TaxCut is doing, because they have to be approved by the various taxiing agencies before they can put it out.

Post Sat Dec 01, 2007 11:08 pm
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The real answer is, "it depends" (complicated). Was each a qualified or non-qualified plan? Did each pension plan specify the age or years of service for "normal" retirement, and did you meet either of those (especially when mentioning 2 pensions)? It might depend upon your age and whether currently working or retired? Apparently Article III of the tax reform act of 1971 (the personal income tax) has a number of tests to determine whether pension income is excluded from PA tax. So you have some searching to do depending upon your specific details.

Not sure if some box on the 1099 would help determine eligibility for state tax exclusion.

Fortunately it was much simpler in Illinois. When I manually did my 2006 taxes I was pleasantly surprised to learn that IL does not tax retirement or pension distributions ($14,000 IRA to Roth IRA conversion). And that was verified when I E-filed online with the state itself. So instead of having to pay $154 to the state, I got a $266 refund. I did have to pay federal tax on the conversion (covered by W-4 withholding adjustment).
Post Sun Dec 02, 2007 7:46 pm
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