The Keystone State is tax-friendly for retirees, with no state tax on Social Security, pensions or income from retirement plans, and relatively low income and sales tax rates. But it’s one of just six states that tax inheritances, and the average property tax rate is high compared with other states.
The big picture:
- Income tax: 3.07 percent
Pennsylvania has a flat individual income tax rate of 3.07 percent, but some municipalities levy local income taxes. Philadelphia and Chester, for example, levy the state’s highest local income tax rate of 3.75 percent.
- Property tax: 1.49 percent of a home’s assessed value (average)
Real estate taxes vary widely in Pennsylvania, with an average tax rate of 1.49 percent of a home’s assessed value in 2021, according to the Tax Foundation.
- Sales tax: 6.34 percent (average combined state and local)
The state sales tax rate is 6 percent, although some goods and services are exempt. Two localities levy an additional local sales tax: Philadelphia at 2 percent and Allegheny County, which includes Pittsburgh, at 1 percent. The state’s average state and local sales tax rate is 6.34 percent, according to the Tax Foundation.
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How is income taxed in Pennsylvania?
Pennsylvania has a flat individual income tax rate of 3.07 percent, meaning that every resident pays the same rate regardless of their income level. Some municipalities levy local income taxes, which include any school district taxes. Philadelphia, for example, levies one of the highest local income tax rates in the state, at 3.75 percent. Municipalities usually levy a lower rate for nonresidents who work there.
Watch the video below to learn how to identify your 2023 federal income tax brackets.
What Is My Tax Bracket?
Are pensions or retirement income taxed in Pennsylvania?
Retirees get a reprieve from income tax because pensions, 401(k) and 403(b) plans and IRAs are exempt from tax.
AARP's Retirement Calculator can help you determine if you are saving enough to retire when — and how — you want.
What about investment income?
Capital gains from investments and dividends are taxed at a flat rate of 3.07 percent. Local taxes are not levied on investment income.
Does Pennsylvania tax Social Security benefits?
No, but you may pay federal taxes on a portion of your Social Security benefits, depending on your income. Up to 50 percent of your benefits will be taxed if you file an individual tax return and make $25,000 to $34,000 in total income — or if you file jointly and as a household make $32,000 to $44,000 in total income. Up to 85 percent of your benefits will be taxed by the federal government if your total income is more than $34,000 individually or $44,000 as a couple.
AARP's Social Security Calculator can assist you in determining when to claim and how to maximize your Social Security benefits.
How is property taxed in Pennsylvania?
Property tax in Pennsylvania is a local tax based on the assessed value of your home. Assessments and reassessments are conducted at the county level. The amount of tax owed is based on a millage rate, which is determined by your county or municipality. One mill equals $1 per every $1,000 of a property’s assessed value. The millage rate is then multiplied by the assessed value of your home.
Real estate taxes vary widely in Pennsylvania, but the average tax rate in 2021 was 1.49 percent, according to the Tax Foundation. March 31 is typically the deadline to pay property taxes in Pennsylvania.
Pennsylvania offers a property tax reduction through a homestead or farmstead exclusion. Generally, most owner-occupied homes and farms are eligible, so long as the home is a primary residence. Contact your county assessment office for more information.
Visit your county’s website to learn about property taxes in your area, or for information about how to contest the value of your property.
What about sales tax and other taxes?
- Sales and use tax: The state levies a 6 percent tax on many, but not all, consumer goods and services. Philadelphia levies an additional 2 percent local sales tax while Allegheny County, which includes Pittsburgh, has a 1 percent local sales tax.
- Most groceries are tax-exempt, as are prescription drugs, most over-the-counter medicine and most medical supplies, with some exceptions. (You’ll pay tax on blood pressure devices, safety grab bars and medical thermometers, for example.)
Toiletries are generally taxed, but not toothbrushes, toothpaste or dental floss. Most clothing is exempt, but certain items are taxed, such as formal wear, furs, Halloween costumes and swimsuits.
Pet care is a mixed bag, but tax-exempt items include medicine, medical supplies, boarding and cremation and burial services (but caskets and urns are taxed). A list of nontaxable and taxable items is on the Pennsylvania Department of Revenue’s website.
- Gas and diesel: The state tax on motor fuel is 57.6 cents/gallon. Some alternative fuels are taxed at a different rate. Gasoline is exempt from state sales tax.
- Alcohol: Pennsylvania is a “control state,” meaning the state directly controls the distribution and sale of alcohol at retail stores. The state taxes liquor at 18 percent in addition to the 6 percent sales tax. Beer is taxed at $2.48 per barrel, and wine is taxed at $2.50 a gallon. The taxes are borne by the consumer, but manufacturers, distributors and importers remit the tax to the commonwealth.
- Lottery: Lottery prizes are taxed at the state’s 3.07 percent individual income tax rate. The Pennsylvania Lottery automatically withholds taxes for winnings more than $5,000. Find more information on the Pennsylvania Lottery website.
Will I or my heirs have to pay inheritance and estate tax in Pennsylvania?
Pennsylvania is one of just six states that tax inheritances. A surviving spouse is exempt, as is a parent inheriting from a child 21 or younger. Everyone else will pay an inheritance tax ranging from 4.5 to 15 percent of your estate’s value, depending on their relationship to you.
- Grandparents, parents, children, grandchildren, great-grandchildren and other direct descendants will pay 4.5 percent.
- Siblings will pay 12 percent.
- All other heirs will pay 15 percent (with some exceptions, such as charitable organizations).
Some property is exempt from the inheritance tax, including property owned jointly between spouses, as well as certain farmland and other agricultural property if the property is transferred to eligible relatives. Property from a military member who has died from an injury or illness received while on active duty is also exempt. For more information about Pennsylvania’s inheritance tax and exemptions, visit the state Department of Revenue’s website.
Are there any tax breaks for older Pennsylvania residents?
The Property Tax/Rent Rebate Program provides rebates to residents 65 and older, widows and widowers 50 and older, and adults with disabilities. Applications for the 2023 rebate are due by June 30, 2024.
Beginning in 2024, the maximum standard rebate increased to $1,000, up from $650. Additionally, the income limit rose to $45,000 for homeowners and renters. Income limits in future years will be tied to the cost of living, so people will not be priced out of the program if their Social Security payments increase.
The amount of the rebate is based on your income:
- If your income is $8,000 or less, you'll receive $1,000.
- If your income is 8,001 to $15,000, you'll receive $770.
- If your income is $15,001 to $18,000, you'll receive $460.
- If your income is $18,001 to $45,000, you’ll receive $380.
Residents in Philadelphia, Pittsburgh and Scranton may qualify for additional rebates ranging from $190 to $500, based on income. These are calculated automatically if your income is $30,000 or less and you pay more than 15 percent of your total income in property taxes.Also, explore if your town or county offers tax relief for seniors. Philadelphia, for example, offers a senior freeze program for older adults who meet income requirements. Find more information about eligibility requirements, deadlines and how to apply on the city’s website.
Allegheny County, which includes Pittsburgh, offers a flat 30 percent property tax discount (up to $650 annually) on your primary residence if you’ve owned and lived in it continuously for the past 10 years. To qualify, you must be 60 or older (50 if you are widowed) or have a permanent disability if you’re age 18 to 60, and meet income requirements. The Allegheny County Treasurer has more information.
Are military benefits taxed in Pennsylvania?
Pensions, including for the military, are not taxed. Military active-duty pay is also exempt from tax.
What is the deadline for filing Pennsylvania taxes in 2024?
A Pennsylvania state tax return is due April 15, 2024, which is also the deadline for federal returns.
Pennsylvania will grant a six-month extension (until Oct. 15, 2024) if you fill out an application; however, you must pay any taxes owed by April 15. The Pennsylvania Department of Revenue has more information.
For help estimating your annual income taxes, use AARP's Tax Calculator.
Sharon Waters, a former CPA, has written for Wired.com and other publications.
Also of Interest:
- States With Highest and Lowest Sales Tax Rates
- How to Get Free Tax Help
- Your 2023–2024 Tax Brackets
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