Taxes in Pennsylvania on IRA Withdrawals

[MercyMe]

When I search online, I see that Pennsylvania supposedly does not collect income tax on IRA/401k withdrawals after age 59-1/2. But the online calculators I've been trying out are showing a 3.07% PA state income tax on tax deferred account withdrawals.

To test my confusion, I tried Fidelity's retirement tool. Their planner/analysis shows different tax amounts between PA and FL (a state which definitely does not collect income tax on tax-deferred account withdrawals after 59-1/2).

What I am missing here? Is there some less obvious rule where certain tax-deferred income amounts are taxable in PA?

 

[freedomatlast]

There is no Pennsylvania income tax due on IRA/401k withdrawals after age 59-1/2. Doesn't matter what anyone's retirement tool says. They don't make the rules. The Commonwealth of PA does. No income tax due on pensions either in PA.

 

[MarieIG]

https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/papersonalincometaxguide/documents/pitguide_grosscompensation.pdf

From the Pennsylvania Department of Revenue - See page 48

 

[VanWinkle]

You have to reduce the IRA/401K income in the state return, same as in Illinois. There should be an
area to deduct IRA/401K income from your state income that is taxable. Ask an AARP tax volunteer
and they will explain, or do it for you.

 

[USGrant1962]

You have to reduce the IRA/401K income in the state return, same as in Illinois. There should be an
area to deduct IRA/401K income from your state income that is taxable. Ask an AARP tax volunteer
and they will explain, or do it for you.

There is no deduction involved, PA does not start with your Federal return like some other states do.

I do Mom's PA return and IRA, 401(k), or pension income (assuming they are "qualifying retirement benefits" generally meaning over 59.5) and SS are excluded from gross compensation on Line 1a of form PA-40. They are never added in, so no need to deduct.

https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2024/2024_pa-40.pdf

 

[Winemaker]

I have been retired for 12 years, and have done Mom's taxes since Dad passed 20 years go. No tax on pension, tTRA, social security, 403b or 401k income.

 

[jazz4cash]

No wonder my neighbors moved to PA when they retired.

 

[USGrant1962]

No wonder my neighbors moved to PA when they retired.

Yea, our early retirement plan included moving back to PA. DW and I are both from PA and family is there, and we need to downsize from our 5K SF house. Our summer cottage, built by FIL, is in PA but is further from here than we would like for long weekends (over 2.5 hours). Moving would save us ~$10K/year just in MD state income tax, and more in other areas. But we like our current (oversized) house, have social connections here, and moving generally is a serious PITA, so we haven't really progressed on that idea.

 

[Sunset]

Maybe the issue is (as I read) In Pennsylvania, several cities impose local income taxes. Some are as high as ~3.75%

Which to me is weird, as I've never lived in a State where the city has an income tax.

 

[Winemaker]

While there is an earned income tax in PA at the city/municipal level, it is on EARNED income and not retirement income, or rental income.
What I thought was a weird tax in West Virginia, was the personal properety tax. A tax on assets, including your dog!

 

[mf15]

But they get you in the end. LOL
oldmike
Pennsylvania Inheritance Tax Rates
The inheritance tax rates are based on the beneficiary's relationship to the decedent:

• 0% on transfers to a surviving spouse or a parent from a child aged 21 or younger.
• 4.5% on transfers to direct descendants (children, grandchildren, parents, etc.).
• 12% on transfers to siblings.
• 15% on transfers to all other heirs, except for qualified charitable organizations, which are exempt.

 

[jazz4cash]

While there is an earned income tax in PA at the city/municipal level, it is on EARNED income and not retirement income, or rental income.
What I thought was a weird tax in West Virginia, was the personal properety tax. A tax on assets, including your dog!

Virgiinia has personal property tax but not sure they assess anything other than autos.

 

[jebmke]

Virgiinia has personal property tax but not sure they assess anything other than autos.

I suspect a lot of jurisdictions have tag fees for pets. Some might not bother with them although if animal control picks them up you will likely never see them again if they don't have the proper tag.

 

[Sunset]

I suspect a lot of jurisdictions have tag fees for pets. Some might not bother with them although if animal control picks them up you will likely never see them again if they don't have the proper tag.

Our City used to have a vehicle windshield sticker, it was ~$5/yr. Really stupid when thought about as the cost to make and distribute and manage the stickers was a good percentage of the price and really just peeved people off. They abolished it after some years.

 

[jebmke]

I think we had that when we lived in Cambride, Belmont and Arlington Mass. It was related to resident parking enforcement.

 

[Winemaker]

Virgiinia has personal property tax but not sure they assess anything other than autos.

The WV personal property tax might have been a county tax, I can't remember. I moved out 1n 1990, back when I was a poor thirty something.

 

[EastWest Gal]

But they get you in the end. LOL
oldmike
Pennsylvania Inheritance Tax Rates
The inheritance tax rates are based on the beneficiary's relationship to the decedent:

• 0% on transfers to a surviving spouse or a parent from a child aged 21 or younger.
• 4.5% on transfers to direct descendants (children, grandchildren, parents, etc.).
• 12% on transfers to siblings.
• 15% on transfers to all other heirs, except for qualified charitable organizations, which are exempt.

Legislation keeps getting introduced to eliminate this tax but it never goes anywhere. Last year the bill that was introduced allowed for a gradual phase out. It looked like reasonable legislation. But it was sent to committee and ignored, once again. When I moved here the state income tax was 3.5%, then it was dropped to 3.07%.

The secret is to move here when you retire, then change your legal residence just before you die-just kidding. Our neighbor, New Jersey, also has an inheritance tax, but direct descendents (children, grandchildren, and married partners (i.e. SIL or DIL) are fully exempt.

 

[Dash man]

I live in Pennsylvania and only pay income tax on interest, capital gains, and dividends.
My kids will pay a boatload of inheritance tax after we’re gone unless we change residence to our Jersey Shore home before we pass.

 

[mf15]

I live in Pennsylvania and only pay income tax on interest, capital gains, and dividends.
My kids will pay a boatload of inheritance tax after we’re gone unless we change residence to our Jersey Shore home before we pass.

One thing to think about. I had to sell my NJ shore house, as an out of state owner had to pay NJ same as fed cap gains tax. Brutal. Bought in 1988 so was big. LOL Worst part, house 1/2 block to the beach in OC,real tuff to give up. Oh yea if on medicare IRMAA kicks in.
oldmike

 

[Flieger]

That's pretty nice (IRA WD's State tax free). Do they tax SS?

Flieger

 

[Dash man]

One thing to think about. I had to sell my NJ shore house, as an out of state owner had to pay NJ same as fed cap gains tax. Brutal. Bought in 1988 so was big. LOL Worst part, house 1/2 block to the beach in OC,real tuff to give up.
oldmike

I get what you’re saying. Ours is two blocks from the beach in NWW. But we plan to pass the house on to the kids, who will get the step up basis. It’s doubled in value since we bought it in 2017. It was built in 1940, and we recently put a new roof and siding on it and painted it inside and stained the deck. We’re done renting it out.

 

[Dash man]

That's pretty nice (IRA WD's State tax free). Do they tax SS?

Flieger

No, PA doesn’t tax SS, pensions, 401k or IRA withdrawals. They do tax ordinary income, capital gains, dividends and interest. It’s a flat 3.07%.

 

[Flieger]

No, PA doesn’t tax SS, pensions, 401k or IRA withdrawals. They do tax ordinary income, capital gains, dividends and interest. It’s a flat 3.07%.

Very nice. A little surprising as I assume they also allow pre-tax contribution during working years, so plays out like a Roth!

With SC did it that way, but they do allow up to $30k income deduction for ANY income at 65 and older.

Flieger

 

[mf15]

I get what you’re saying. Ours is two blocks from the beach in NWW. But we plan to pass the house on to the kids, who will get the step up basis. It’s doubled in value since we bought it in 2017. It was built in 1940, and we recently put a new roof and siding on it and painted it inside and stained the deck. We’re done renting it out.

Wow 1940 thought mine was old, bottom built when I was 2,1951 I owned the top built 1975. Someone probably will need to pay depreciation recapture. Yea mine doubled during COVID.
oldmike

 

[mf15]

One way to mitigate some of the Pa inheritance tax. Gift the money to kids,grand kids,one year prior to passing. .If money going to spouse no tax yet,but of course spouse will get hit.
oldmike