This guide offers a step-by-step walkthrough for preparing and filing your 2016 Pennsylvania income tax return. Whether you are completing a Pennsylvania personal income tax return for the first time or seeking to refine your understanding of state requirements, this resource draws on official guidance from the Pennsylvania Department of Revenue to simplify complex rules and deadlines. You will gain confidence in reporting your taxable income accurately and understanding your overall tax liabilities under Pennsylvania law.
Individuals and small-business owners alike will find this guide tailored to their needs. You must file if you received wages, interest, dividends, or rental income or operated a sole proprietorship, partnership, or S corporation in 2016. Nonresident individuals with Pennsylvania-source income and part-year residents must also comply with state filing thresholds. By addressing the most common scenarios, this introduction ensures that every taxpayer can identify whether they need to submit a Pennsylvania income tax return.
Following the chapters, you will learn how to determine your filing requirement, select and complete the correct forms and schedules, calculate your Pennsylvania tax rate of 3.07 percent, and apply credits and payments to minimize penalties. The guide will explain electronic and paper filing methods, payment options, and strategies for tracking refunds or amounts due. With this knowledge, you can manage your 2016 Pennsylvania tax obligations efficiently and avoid costly mistakes.
Overview of Pennsylvania State Income Tax for 2016
Who needs to file
If you received more than $33 in Pennsylvania-sourced gross taxable income during 2016, even if no tax is due, you must file a Pennsylvania income tax return. This requirement applies to residents, part-year residents, nonresident individuals, and minors (with a parent or guardian filing on their behalf). Business owners—including sole proprietors, partners in partnerships, and S-corporation shareholders—must also file if they incurred a loss or generated income from Pennsylvania activities.
Filing deadline (April 18, 2017)
The deadline to submit your 2016 Pennsylvania personal income tax return was midnight on April 18, 2017. The U.S. Postal Service postmark on your envelope is proof of timely filing, so be sure your return is mailed before that date. Missing this deadline can trigger penalties and interest, increasing your total tax liabilities.
2016 tax rate (3.07%)
Pennsylvania levied a flat personal income tax rate of 3.07 percent (0.0307) on taxable income for the 2016 tax year. This rate applies uniformly to all types of taxable income—wages, interest, dividends, business profits, and rental income—reported on Form PA-40. Understanding this flat rate helps you accurately calculate the state tax due after determining your adjusted taxable income.
Key changes in 2016
- Lottery winnings taxation: Cash prizes from the Pennsylvania Lottery paid on or after January 1, 2016, became subject to state income tax, and the Department began withholding tax on prizes paid after July 12, 2016. This change increased the taxable income reported by many lottery winners.
- Involuntary conversions exclusion: Gains from involuntary conversions under IRC Section 1033 that occurred after September 11, 2016, were excluded from Pennsylvania taxable income. This exclusion reduced tax liabilities for property owners affected by disasters or eminent domain actions.
- ABLE Savings Program earnings: Earnings in Pennsylvania’s ABLE (Achieving a Better Life Experience) savings accounts were exempt from state income tax, providing a tax-free savings vehicle for individuals with disabilities.
- Digital products sales tax: The Commonwealth expanded its sales and use tax to include digital products—such as video, books, games, apps, music, and software—transferred electronically on or after August 1, 2016. This broadened the tax base and affected taxpayers purchasing digital goods.
- Refund donation option: Taxpayers filing 2016 returns could elect to donate all or a portion of their Pennsylvania tax refund to a PA 529 College Savings Program account directly on Form PA-40. This introduced a simple way to support higher-education savings.
What Forms to Use
Primary individual return (Form PA-40)
- Form PA-40: This is the primary Pennsylvania personal income tax return used by residents, nonresident individuals, and part-year residents to report all taxable income and calculate tax liabilities. Completing Form PA-40 ensures you account for your total Pennsylvania gross taxable income and apply the correct flat tax rate of 3.07 percent.
Standard schedules & supporting forms
- Schedule W-2S: Reports your wage summary from all employers and provides the Pennsylvania Department of Revenue with withholding details. Accurately completing Schedule W-2S helps guarantee you receive credit for taxes already withheld from your compensation.
- Schedule A: Captures interest income you received during the tax year and must be filed if Line 2 of Form PA-40 shows interest. Reporting interest correctly prevents underpaying taxable income and avoids potential audits by the Department of Revenue.
- Schedule B: Used for dividend and capital gains distributions you received, ensuring that investment income is included in Line 3 of your return. Properly documenting dividends and capital gains on Schedule B helps you calculate your total taxable income accurately.
- Schedule C: Records profit or loss from your sole proprietorship or freelance business activities, with net results transferred to Line 4 of Form PA-40. Maintaining detailed business expense records on Schedule C can reduce your taxable income and tax liabilities.
- Schedule D: Covers gains or losses from sales, exchanges, or property dispositions, reported on Line 5 of Form PA-40. Correctly applying cost basis and sale proceeds on Schedule D ensures compliance with Pennsylvania’s treatment of capital transactions.
- Schedule E: Reports rental, royalty, and patent income, which is entered on Line 6 of Form PA-40. Keeping organized records of rental agreements and royalty statements supports the amounts you report and helps substantiate deductions.
- Schedule SP: Allows low-income taxpayers to claim Special Tax Forgiveness, reducing or eliminating state tax liabilities on qualifying income. Eligibility criteria and income thresholds on Schedule SP can lead to significant tax relief for those who meet the requirements.
- Schedules RK-1/NRK-1: RK-1 is for resident partners or S-corporation shareholders, and NRK-1 is for nonresident pass-through income recipients. These schedules break down each partner’s or shareholder’s share of income, which you then enter on the corresponding lines of Form PA-40.
Small-business filings
- Sole proprietors (Schedule C → PA-40): Sole proprietors use Schedule C to calculate net business profit or loss for each activity and then transfer the net amount to Form PA-40, Line 4. This process integrates your self-employment earnings seamlessly into your return.
- Partnerships & S-corporations (PA-20S/PA-65 + RK-1/NRK-1): Partnerships and S-corporations file Form PA-20S/PA-65 to report entity-level information, while each partner or shareholder receives Schedule RK-1 or NRK-1. You report the pass-through amounts on your PA-40 to ensure that all partnership and S-corporation income is taxed at the individual level.
- Form PA-20S/PA-65: This information return summarizes income, deductions, and credits at the business level, facilitating proper allocation of income items to partners and shareholders. Completing Form PA-20S/PA-65 accurately helps prevent discrepancies between business filings and individual returns.
Step-by-Step Instructions to Complete Your Return
Step 1: Gather required documents
- W-2 and 1099 forms: Collect all W-2 statements from employers and 1099 forms for interest, dividends, and miscellaneous income to ensure every source of taxable income is accurately reported. Having these documents on hand helps prevent missing income and avoids potential underreporting penalties.
- Business and rental records: Assemble profit and loss statements, expense receipts, lease agreements, and royalty statements to support entries on Schedules C and E. Detailed records substantiate deductions and protect you in the event of a department audit.
- Prior year return and Social Security numbers: Keep your 2015 Pennsylvania return for reference to carry forward credits or estimate liability, and have Social Security numbers for yourself, your spouse, and dependents ready. Accurate SSNs ensure proper identification and prevent processing delays.
Step 2: Enter personal & residency information
- Personal details: On Form PA-40, fill in your name, current address, Social Security number, and filing status (Single, Married Filing Jointly, or Married Filing Separately). Correct personal information is essential for department correspondence and refund processing.
- Residency and school district: Select your residency status (Resident, Nonresident, or Part-Year Resident) and enter your school district name and code. School district codes determine any local earned income tax levied by your district under Pennsylvania law.
Step 3: Report taxable income (Lines 1–9)
- Line 1: Gross compensation: Enter total wages, salaries, and tips from all W-2 forms. Reporting full compensation ensures accurate calculation of your tax liabilities at the flat 3.07 percent rate.
- Line 2: Interest income: Complete and attach Schedule A if you had interest earnings, and then transfer the total to Line 2. Including interest prevents underreporting of investment income, a common audit trigger.
- Line 3: Dividends and capital gains: Use Schedule B to detail dividends and capital gains distributions, then report the combined amount on Line 3. Properly capturing dividend income and gains meets Pennsylvania’s taxable income requirements.
- Lines 4–6: Business and rental income: Report net profit or loss from Schedule C on Line 4, gains or losses from Schedule D on Line 5, and rental or royalty income from Schedule E on Line 6. Breaking out each income type clarifies your total taxable income for the department.
- Lines 7–8: Estate, trust, and lottery income: Enter estate or trust distributions on Line 7 (attach Schedule J) and gambling or lottery winnings on Line 8 (attach Schedule T). Including these less common income sources avoids unexpected liabilities later.
- Line 9: Total taxable income: Add lines 1c through 8 to compute your total Pennsylvania taxable income. This sum forms the basis for calculating your state tax liability.
Step 4: Calculate tax liability (Lines 10–12)
- Line 10: Other deductions: Enter any allowable deductions using the appropriate deduction codes (e.g., retirement, disability). Claiming valid deductions lowers your adjusted taxable income.
- Line 11: Adjusted taxable income: Subtract Line 10 from Line 9 to determine your adjusted income. This figure reflects your income after permitted deductions for accurate taxation.
- Line 12: Tax liability: Multiply Line 11 by 3.07 percent (0.0307) to calculate your Pennsylvania state tax liability. Applying the flat rate correctly ensures you neither underpay nor overpay your state taxes.
Step 5: Apply payments & credits (Lines 13–24)
- Line 13: Tax withheld: Sum all Pennsylvania tax withheld reported on your W-2 and 1099 forms. Withholding credits reduces your balance due or increases your refund.
- Lines 14–17: Estimated and extension payments: Enter credit from your 2015 return on Line 14, 2016 estimated installment payments on Line 15, and extension payments on Line 16; nonresident withholding goes on Line 17. Tracking these payments ensures you receive full credit for prior and current remittances.
- Lines 18–23: Tax forgiveness and credits: Complete Schedule SP for Special Tax Forgiveness (Line 19), Schedule G-L for resident credit (Line 22), and Schedule OC for other credits (Line 23). Properly claiming these credits can significantly lower your total tax due.
- Line 24: Total payments and credits: Add Lines 13, 18, 21, 22, and 23 to determine the total of all fees and credits applied against your liability.
Step 6: Determine amount due or refund (Lines 25–32)
- Line 25: Use tax: Report use tax on out-of-state internet or mail-order purchases where sales tax wasn’t collected. This ensures compliance with Pennsylvania’s local and state sales tax obligations.
- Line 26: Tax due: If Lines 12 plus 25 exceed Line 24, enter the difference on Line 26 as the amount owed. Accurate calculation prevents underpayment penalties and interest charges.
- Line 27: Penalties and interest: If applicable, calculate and include penalties for late filing or underpayment and interest accrued on overdue amounts. Accounting for these charges avoids surprise balances due.
- Line 28: Total payment due: The sum of lines 26 and 27 determines the full amount you must pay. This total guides your payment method selection and timing.
- Lines 29–31: Overpayment, refund, and credit: If Line 24 exceeds Lines 12, 25, and 27, enter the overpayment on Line 29, designate your refund amount on Line 30, and the portion to apply to 2017 estimated tax on Line 31. Electing to apply overpayment to next year’s taxes can reduce future estimated payment obligations.
- Lines 32–36: Refund donations: Donate all or part of your refund to a Pennsylvania 529 College Savings Program account. This charitable option supports higher-education funding directly from your tax return.
Step 7: Sign, date, & prepare to file
- Signatures: Both you and your spouse (if filing jointly) must sign and date Form PA-40; tax preparers should also include their information. Signed returns are legally binding and validate your submission.
- Attachments: Ensure all required schedules, forms, and supporting documentation are securely attached. Incomplete packages can delay processing or trigger requests for additional information.
- Filing method: Choose electronic filing for faster confirmation and direct deposit, or follow paper filing instructions to mail your complete return to the appropriate Pennsylvania Department of Revenue address. Selecting the correct mailing address based on payment status prevents misrouting.
How to File Your Return
Electronic filing options
- PaDirectFile: A free, secure e-file service provided by the Pennsylvania Department of Revenue for personal income tax returns. It offers built-in error checks and allows direct deposit refunds.
- Fed-State E-File: Fee-based software from reputable vendors that lets you file both federal and state returns together, simplifying the filing process and performing automatic calculations.
Benefits of E-filing
- Faster processing: E-filed returns with direct deposit are typically processed in 4–6 weeks, compared to 8–10 weeks for paper returns.
- Error reduction: Built-in validation catches common mistakes before submission, reducing audit risk and the need for corrections.
- Confirmation of receipt: You receive instant acknowledgement of successful submission, giving you peace of mind.
Paper filing procedures
- Document order and ink requirements: Use black ink to complete Form PA-40 and attach schedules in this order: W-2 forms, 1099s, Schedule OC, RK-1/NRK-1, G-L, and then any other schedules.
- Mailing addresses:
- With payment:
PA DEPARTMENT OF REVENUE
PAYMENT ENCLOSED
1 REVENUE PLACE
HARRISBURG, PA 17129-0001
- No payment/refund receipt:
PA DEPARTMENT OF REVENUE
NO PAYMENT NO REFUND
2 REVENUE PLACE
HARRISBURG, PA 17129-0002
- Refund requested:
PA DEPARTMENT OF REVENUE
REFUND REQUESTED
3 REVENUE PLACE
HARRISBURG, PA 17129-0003
How to Make a Payment
Check or Money Order
Make your check or money order payable to PA DEPT OF REVENUE, include your SSN and “2016 PA-40” on the memo line, and submit it with Form PA-V. Do not staple the payment to your return to ensure it is processed correctly.
Credit/Debit Card
You can pay online via Official Payments Corporation or by calling 1-800-2PAYTAX, though convenience fees apply (2.49 percent for credit cards, $1 minimum; $3.95 minimum for debit cards). This method provides immediate confirmation of payment.
Electronic Funds Transfer (EFT)
Use the Department’s e-Services Center to schedule a bank transfer directly to your tax account at no additional fee. EFT ensures timely receipt and reduces the risk of lost or delayed payments.
Payment Deadline
All payments must be received or postmarked by April 18, 2017; extensions to file do not extend the payment due date. Late or missing payments incur interest and penalties from the due date forward.
Can’t Pay in Full?
File your return by the deadline to avoid the late-filing penalty, and pay as much as possible. The department will bill you for the remaining balance plus applicable interest. This approach limits penalties compared to failing to file or pay.
How to Track Your Refund or Balance Due
Checking Refund Status
Visit the PA Department of Revenue’s “Where’s My Refund?” tool online, entering your SSN and exact refund amount for real-time updates. You can also call 1-888-PATAXES (1-888-728-2937) or 717-425-2533 (Harrisburg) to check status by phone.
Typical Processing Timelines
E-filed returns with the direct deposit process take approximately 4–6 weeks, while paper returns with mailed checks take about 8–10 weeks. To ensure accurate information, avoid calling before eight weeks have passed.
Verifying Payments Received
Confirm EFT or check payments by reviewing your bank statements for the debit or cashed check. When in doubt, use the e-Services Center to verify that the Department has posted your payment.
Responding to Notices or Bills
If you receive a notice or bill, read it carefully and compare it to your records. Respond promptly by the date specified and contact the number on the notice if you need clarification to prevent further penalties.
Final Filing Checklist
- Correct SSNs & Filing Status: Verify Social Security numbers and choose the appropriate filing status (Single, Married Filing Jointly, Married Filing Separately).
- Residency & School District: Confirm your residency status and enter the accurate school district name and code.
- All Income Sources Included: Ensure wages, interest, dividends, business, rental, and lottery income are reported and attached.
- Required Schedules Attached: Include Schedules W-2S, A, B, C, D, E, SP, RK-1/NRK-1, and any others that apply.
- Credits Properly Claimed: Claim eligible credits such as Tax Forgiveness (SP), resident credit (G-L), and other applicable credits.
- Signatures & Dates: Sign and date Form PA-40 (and your spouse, if filing jointly), plus preparer information if used.
- Payment & Mailing Details: Confirm payment method, amount due or refund election, and mail to the correct address (payment enclosed, no fee, or refund requested).
- Copy for Your Records: Make a complete copy of the filed return and all attachments for at least four years of recordkeeping.
Frequently Asked Questions
What if I missed the filing deadline for April 18, 2017?
Suppose you missed the April 18, 2017, deadline for your 2016 Pennsylvania tax return. File as soon as possible to reduce penalties. Pennsylvania imposes a 5 percent penalty on unpaid tax per month (up to 25 percent), plus interest. Filing and paying your tax liabilities promptly limits additional charges from the Department of Revenue.
Can I e-file my 2016 Pennsylvania income tax return for free?
Yes. Pennsylvania’s PaDirectFile service allows most taxpayers to file their 2016 income tax return electronically at no cost. You will need your Social Security number, last year’s tax liability, or PA driver’s license or ID number for authentication. PaDirectFile also supports direct deposit for faster refund processing.
Which deductions or credits do taxpayers often miss?
Taxpayers commonly overlook the Special Tax Forgiveness credit on Schedule SP, the resident credit for taxes paid to other states on Schedule G-L, and unreimbursed employee business expenses on Schedule UE. Contributions to a PA 529 College Savings Program or Medical Savings Accounts may also qualify for state credits, reducing your overall Pennsylvania taxable income and tax liabilities.
How do I request a filing extension?
Pennsylvania automatically honors federal extensions when you submit IRS Form 4868 by the federal deadline. This grants you extra time to file your Pennsylvania income tax without penalty for late filing. Remember, however, that an extension to the filing does not extend the payment due date—any tax owed must still be paid by April 18, 2017, or interest and penalties apply.
How is retirement income taxed in Pennsylvania?
Pennsylvania exempts most retirement income from state tax once you reach retirement eligibility. Qualified pension and annuity distributions, Railroad Retirement, and Social Security benefits are generally tax-free. Income received from retirement plans before you qualify for full retirement status may remain taxable, so verify eligibility with the Pennsylvania Department of Revenue to determine if your distributions are exempt.
How do sole proprietors report business income?
Sole proprietors fill out Schedule C to determine their profit or loss for each business, showing total income and expenses. The final amount from Schedule C is then put on Line 4 of Form PA-40, which adds to your taxable income in Pennsylvania. Maintaining accurate records and receipts ensures you claim all allowable business deductions and correctly calculate your state tax liabilities.
