DFO-02 (EX) 12-19
PERSONAL INCOME TAX PREPARATION GUIDE                                       

WHAT’S NEW                                                Return. Although it may also be used by individual
Instructions were added to the Married, Filing            taxpayers who prepare their own PA-40, the prepa-
Jointly (J) filing status on Page 17 to clarify that      ration guide was written using language from a
taxpayers with EITC, OSTC and REAP tax credits            preparer’s perspective.
may file using the Married, Filing Jointly status.        Before reviewing how to assist taxpayers in the
Various forms and schedules were revised by the           preparation of the PA personal income tax return,
department to identify areas on the documents as          some key principles must be emphasized.
Sections instead of Parts. The references to those        CONFIDENTIALITY AND INTEGRITY
areas included throughout these instructions were
                                                          As a tax preparer through the Volunteer Income
also changed accordingly. In addition, the depart-
                                                          Tax Assistance (VITA) and Tax Counseling for the
ment now uses Roman numerals to identify the
                                                          Elderly (TCE) programs, you have a special trust
areas instead of letters or Arabic numbers.
                                                          from the taxpayers who seek your help. To maintain
PA-40 Schedule W-2S, Section II, Column C, now            the integrity of this program and to respect the
requests the Payer’s FEIN instead of the Payer’s          trust placed in you, tax information must be treated
Name.                                                     as confidential at all times. Also remember that
Taxpayers with distributions from a KSOP, must            VITA/TCE tax preparers are prohibited from
now include a copy of the plan with the fling of          accepting compensation from taxpayers for prepar-
their tax return.                                         ing PA personal income tax returns.

The 1099-R Code 9 information on Page 32 was              QUALITY SERVICE
revised to Include that distributions identified as       Quality service to taxpayers is our goal. It is impor-
PS-58 costs are taxable for PA PIT purposes.              tant to check your work for accuracy. Use a
                                                          calculator to verify mathematical calculations. If
The meals and entertainment expenses line on
                                                          you are uncertain of the proper method of reporting
PA-40 Schedule UE was divided into two lines and
                                                          any transaction, consult your immediate supervisor.
separate instructions are now included for those
lines.                                                    Your success as a tax preparer largely depends on
                                                          your ability to establish rapport with taxpayers and
Instructions were added that taxpayers with use tax
                                                          interview taxpayers effectively. First, it is important
on utilities should use the online PA-1 to file and pay
                                                          to put the taxpayer at ease. You will ask questions
their use tax.
                                                          to determine not only tax liability but also benefits
The PA Schedule D-71 instructions included on             and credits. For example, many taxpayers are not
Pages 50 and 51 were updated as a result of the           aware of the special tax forgiveness provision or
reformatting of the form and instructions to meet         the exclusion of a gain realized on the sale of a
the department’s new standards.                           principal residence. If filing a paper return, you
Instructions were added to require copies of PA-41        should have the taxpayer sign and date the return
Schedule NRK-1 be included with the filing of the         upon completion and provide them with the proper
PA-40 when a nonresident trust has nonresident            address to which the return should be mailed.
withholding.                                              INTERVIEWING TECHNIQUES
Taxpayers who received preprinted PA-40 ES                Introductory Stage
coupons from the department will not be mailed            It is important to establish a good relationship with
the 2020 coupons. See Page 59 for additional              the taxpayer. Greet the person you will be helping
information.                                              in a friendly way and introduce yourself. Smile and
                                                          make eye contact. If anyone has waited for a long
PURPOSE                                                   time, apologize for the delay. Many people are nerv-
The Personal Income Tax Preparation Guide’s               ous when it is time to prepare their income tax
purpose is to provide volunteer preparers and             return, so take a few minutes to chat informally if
Department of Revenue Field Office personnel with         necessary. Remember, good humor and a readi-
additional information and instructions for the           ness to help is the essence of courtesy. If a taxpayer
preparation of the PA-40, Personal Income Tax             starts complaining, do not take it personally. Listen
                                                                                                        Page 1
PERSONAL INCOME TAX PREPARATION GUIDE                                        

to the entire complaint. Do not interrupt as that will          Department of Revenue. Instruct taxpayers
only make the taxpayer more upset.                              to include the last four digits of their primary
                                                                Social Security number (SSN) and tax year on
Questioning Stage
                                                                the front of the check or money order. If a
As an interviewer, you must control the conversa-
                                                                Form PA-40 V is not available from the software
tion and keep the taxpayer from asking unrelated
                                                                used by the preparer or one is not prepared
questions. It will be helpful to follow these guide-
                                                                from the Fill-In PA-40 V on the department’s
                                                                website, the department advises each taxpayer
   • Phrase questions very clearly, avoiding multi-             to use the complete SSN on the check or
     ple questions.                                             money order if faster clearing is desired and
  • Repeat questions if necessary. Keep in mind                 more accurate posting of the check is preferred.
    not everyone understands technical tax terms.               Otherwise, it can take up to four weeks for a
  • Listen carefully to the taxpayer’s responses                check to clear if there is insufficient information
    and be patient.                                             such as taxpayer name, address, and tax year
                                                                on the check. In the event the department
  • To the extent possible, explain the return as it
                                                                cannot determine the correct account for
    is completed.
                                                                posting of the check, the taxpayer’s account
  • Encourage people to ask questions if they do                will eventually be billed and additional corre-
    not understand.                                             spondence will need to be addressed by the
  • If you cannot answer a question, say "I do not              taxpayer. If your volunteer site e-files returns
    know but will find out."                                    using special software, the taxpayer may
                                                                be able to remit the tax payment online. See
  • Research difficult questions in available tax
                                                                PAYMENT OPTIONS beginning on Page 72
    books, consult with your immediate supervisor
                                                                for additional information.
    or contact your local Department of Revenue
    district office.                                         • If a paper return is being prepared, instruct the
                                                               taxpayer to mail the return by midnight on the
NOTE: Questioning can be effective in determining              due date, along with any monies due.
sources of income. However, it is the taxpayer who
is responsible for the accuracy of the information           • If filing more than one tax return for a tax-
provided. You, as a preparer, are not accountable              payer, advise the taxpayer to mail each return
for any misinformation given by the taxpayer.                  separately.
                                                             • Ask if the taxpayer has any questions. Be sure
Summary Stage
                                                               to return all tax materials to the taxpayer, and
When the return(s) is/are completed, you will need
                                                               give the taxpayer a copy of the filed return to
to give the taxpayer some additional information.
                                                               keep with his/her records.
   • Have the taxpayer sign and date the return. If
      filing a paper return and the filing status on the     • Thank the taxpayer and remember to respect
      return is Married, Filing Jointly, make sure             the taxpayer's privacy. Keep all tax information
      both taxpayers sign the return. If one taxpayer          confidential.
      is not present, remind the taxpayer to have          TAX ASSISTANCE GUIDELINES
      his/her spouse sign the return.
                                                           When assisting a taxpayer with the preparation
  • If there is an overpayment and the taxpayer            of a tax return, you should not hesitate to contact
    plans to move, advise the taxpayer to notify           your immediate supervisor for guidance. Our main
    the local Department of Revenue district office        objective is to provide quality service, which can
    immediately to have the address updated. This          only be achieved by working together.
    will ensure the refund is sent to the appropri-
    ate address. The post office may not forward           FEDERAL/STATE ELECTRONIC
    refund checks.                                         FILING (e-file)
  • If a balance is due, advise the taxpayer of            Taxpayers may file federal and PA income tax
    payment options. Payment may be remitted by            returns electronically, either through a tax preparer
    check or money order made payable to the PA            or by purchasing software.
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PERSONAL INCOME TAX PREPARATION GUIDE                                    

VITA/TCE sites that e-file returns using special soft-   ADDITIONAL INFORMATION
ware should mail Form PA-8453 or PA-8879 to the          FOR EROS
following address:
                                                         The department requires all PA electronic returns to
     PA DEPARTMENT OF REVENUE                            be accepted by the Internal Revenue Service (IRS).
     BUREAU OF INDIVIDUAL TAXES                          Once accepted by the IRS, the ERO does not have
     ELECTRONIC FILING SECTION                           to register separately with the PA Department of
     PO BOX 280507                                       Revenue.
     HARRISBURG PA 17128-0507
These forms should be submitted to the department        ACKNOWLEDGEMENT OF
at the end of the tax preparation season with a note     PA ELECTRONIC RETURNS
stating they are from a volunteer site. A PA-8453 is     The Pennsylvania Department of Revenue will
not required if a taxpayer signs the federal return      acknowledge the receipt of a return. However, the
with a federal self-select PIN and that PIN is carried   acknowledgement system will now only inform a
over to the PA return. If the practitioner’s PIN is      taxpayer if a return was accepted or rejected. If a
being used or someone else other than the tax-           return is rejected, the rejection message will iden-
payer is entering the taxpayer’s PIN on the federal      tify the reject as a business rule or schema error
return, PA-8879 must be signed. The PIN does not         only. Refer to software instructions or contact the
need to be entered twice and can be carried over         software representative for information regarding
from the federal return as long as the taxpayer          responsibilities for accessing and retrieving state
understands he/she is signing both returns.              acknowledgements.
The department also allows statements to be filed
                                                         ACCEPTED PENNSYLVANIA
electronically through the electronic return origina-
tors (ERO) with the return. These statements             FORMS/SCHEDULES
describe why certain income was or was not               The following Pennsylvania forms may be trans-
reported or why a particular paper document is           mitted electronically (refund, equal and balance
being retained by the ERO (i.e. military orders,         due, with or without payment), and payment must
stipend, extension form).                                be made by electronic funds withdrawal, check,
                                                         money order or credit card.
Electronic filing provides the following benefits:
                                                           • Form PA-40 - Pennsylvania Individual Income
  • Accuracy. Computer programs catch mistakes                Tax Return (includes nonresident and Part-
     before they become problems.                             Year Resident returns)
  • Acknowledgement. The department elec-                  • PA Schedule A - Interest
    tronically notifies the preparer or ERO that the
    return was received and accepted.                      • PA Schedule B - Dividends
                                                           • PA Schedule C - Profit or Loss From Business
  • Refunds. With electronic filing, the taxpayer
                                                             or Profession
    has the option to receive a refund via direct
    deposit. This service is not available when            • PA Schedule D - Sale, Exchange or Disposi-
    filing a paper return.                                   tion of Property
  • File Now, Pay Later. A return can be filed             • PA Schedule D-1 - Computation of Installment
    anytime before the due date. If tax is owed,             Sale Income
    payments may be made by authorizing an                 • PA Schedule D-71 - Sale or Exchange of Prop-
    electronic funds withdrawal. This withdrawal             erty Prior to June 1, 1971
    can be scheduled for a later date and may be           • PA Schedule E - Rent, Royalty, Patent and
    paid from the taxpayer’s checking or savings             Copyright Income or Loss
    account. The taxpayer may also choose to
                                                           • PA Schedule F - Farm Income and Expenses
    remit payment via check or money order with
    Form PA-40 V, Payment Voucher, which should            • PA Schedule G-L - Out-of-State Credit, Long
    be mailed by midnight on the due date of the             Form
    return.                                                • PA Schedule J - Estate & Trust Income
                                                                                                     Page 3
PERSONAL INCOME TAX PREPARATION GUIDE                                   

  • PA Schedule W-2S - Wage Statement                    • Returns containing forms/schedules not listed
    Summary                                                under federal forms; or “Accepted Pennsylva-
  • PA Schedule SP - Tax Forgiveness Credit                nia Forms/Schedules”.
  • PA Schedule RK-1- Resident Schedule of PA          NOTE: Electronic filing of Form PA-41 is only avail-
    S Shareholder/Partner Pass-Through Income,            able through some paid preparers but is not
    Loss and Credits                                      available by department or volunteer tax
  • PA Schedule NRK-1- Non-Resident Schedule              preparers. Electronic filing of Form PA-20S/
    of PA S Shareholder/Partner Pass-Through              PA65 S Corporation/Partnership Information
    Income, Loss and Credits                              Return is available from most paid preparers
  • PA Schedule UE - Allowable Employee Busi-             but is not available by department employees
    ness Expenses                                         or volunteer tax preparers.
  • PA Schedule OC
                                                       CONTACT INFORMATION FOR
  • PA Schedule O
                                                       E-FILE INQUIRIES
  • PA Schedule P
                                                       The PA Department of Revenue has telephone
  • PA Schedule T - Gambling and Lottery               lines for exclusive use by EROs, transmitters and
    Winnings                                           software developers participating in the Federal/
  • PA REV-1630 - Underpayment of Estimated            State e-file program. The operating hours are Mon-
    Tax by Individuals                                 day through Friday, 7:30 a.m. to 5:00 p.m. (except
  • PA REV-1630A - Underpayment of Estimated           holidays).
    Tax by Farmers
                                                       NOTE: The following phone number is not to be
  • PA Schedule 19 - Sale of a Principal               provided to taxpayers.
                                                       Help Desk 717-787-4017.
  • PA Schedule NRH - Apportioning Income by
    Nonresident Individuals                            You may forward correspondence for the electronic
  • Schedule PA-40 X Amended Schedule                  filing program to the following address:
  • W-2 Forms                                                PA DEPARTMENT OF REVENUE
                                                             BUREAU OF INDIVIDUAL TAXES
  • 1099-R Forms                                             PO BOX 280507
  • W-2G Forms                                               HARRISBURG PA 17128-0507
NOTE: Federal K-1s are not supported in PA e-File            FAX: 717-772-4193 or 717-787-2840
software. However, software packages that offer pdf    You may also fax information concerning electron-
file attachments can include the federal K-1 and its   ically filed returns to the department using the
related supporting statements via pdf file with the    Personal Income Tax Correspondence Sheet, DEX-
return if the income and losses from that K-1 are      93, which is also available from the Department of
also input into the return.                            Revenue’s website, The fax
                                                       cover sheet includes the proper fax numbers for
EXCLUSIONS FROM                                        providing specific information regarding electroni-
ELECTRONIC FILING                                      cally filed returns. Using the fax cover sheet
The following documents are excluded from Fed-         enables the department to more quickly and accu-
eral/State electronic filing:                          rately attach information to the correct taxpayer’s
  • Non-calendar, fiscal year returns;                 return and further allows for faster turnaround times
  • Amended individual income tax returns for          for processing of taxpayer correspondence.
    years prior to 2010;
                                                       For a full explanation of the Federal/State e-file
  • Form PA-40 NRC - Nonresident Consolidated          program, please review the Pennsylvania Fed/State
    Income Tax Returns;                                E-file Handbook, REV-993. This booklet may be
  • Form PA-40 KOZ – PA Income Tax Keystone            downloaded from the Department of Revenue’s
    Opportunity Zone Return;                           website,
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PERSONAL INCOME TAX PREPARATION GUIDE                                   

FORM PA-40 GENERAL                                     Determining Residency
INSTRUCTIONS                                           An individual may have to pay income tax as a PA
                                                       resident even if he or she is not considered a PA
Filing Due Date
The due date for filing the PA personal income tax     resident for other purposes. For income tax pur-
return is the same due date as it is for federal       poses, one must consider both where he or she
income tax returns. Generally, that date is April 15   is domiciled and where he or she maintained a
or the next business day if the 15th falls on a        permanent place of abode during the taxable year.
Saturday, Sunday or holiday. If the IRS determines     An individual’s domicile is their fixed and permanent
that Emancipation Day for Washington, DC is a          home to which they always have the intention of
holiday, the due date will be the next business day    returning whenever absent, even though they may
after the holiday.                                     live elsewhere. An individual can have only one
Extension                                              state of domicile at any given time. Below are some
A taxpayer may request an extension of time to file,   factors to consider when determining an individual’s
however this does not extend the payment dead-         place of domicile:
line. If the taxpayer anticipates a tax balance due,      • Where does the taxpayer spend the greatest
he/she should submit payment with the extension             amount of time during the taxable year?
request.                                                 • Where does the taxpayer maintain a perma-
Extensions may be requested in two ways:                   nent abode for the longest amount of time
  • The taxpayer can submit Form REV-276,                  during the taxable year?
    Application for Extension of Time to File, post-     • Where does the taxpayer support his or her
    marked on or before the April 15 due date.             spouse and children?
  • The taxpayer may submit a copy of a federally        • Where does the taxpayer purchase the neces-
    approved extension of time to file with his/her        sities of life?
    state return.
                                                         • Where does the taxpayer have doctors,
An extension grants an individual an additional six        lawyers and accountants?
months to file a return. People outside the country
                                                         • Where does the taxpayer house his or her
are automatically granted a two-month extension to
file by June 15.
                                                         • Where does the taxpayer have active banking
Who must file?
Any PA resident, nonresident or part-year resident
who:                                                     • Where does the taxpayer worship regularly?
  • Received total PA gross taxable income in            • Where does the taxpayer participate in social,
     excess of $33 during the tax year, even if no         fraternal or athletic organizations, lodges or
     tax is due; and/or                                    country clubs?
  • Incurred a loss from any transaction as an           • Where does the taxpayer have works of
    individual, sole proprietor, partner in a part-        art, expensive furniture, family portraits or
    nership or PA S corporation shareholder.               heirlooms?
Minors. PA law does not exempt a minor from the          • Where does the taxpayer fulfill local tax
above requirements to file a PA tax return even            obligations?
if the minor is claimed as a dependent on a federal      • Where is the taxpayer employed?
return. A parent must file a return on behalf of the
minor child in such circumstances.                       • Where does the taxpayer own real estate fit for
                                                           year-round living?
Decedents. The executor, administrator or other
person responsible for the affairs of a decedent         • Where does the taxpayer maintain a driver's
must file a PA tax return on behalf of the decedent        license and vehicle registration?
if the decedent could not or did not elect to file a     • Where does the taxpayer maintain profes-
joint return with a surviving spouse.                      sional licenses?
                                                                                                    Page 5
PERSONAL INCOME TAX PREPARATION GUIDE                                     

  • Where does the taxpayer maintain union mem-          not dependent upon continuous physical presence.
    bership?                                             It is not abandoned by absence or even by presence
  • Where does the taxpayer declare residency            in a former domicile, no matter how long continued,
    for fishing or hunting licenses, income tax re-      if, in leaving and during the absence, there is not
                                                         firm, sincere, unconditional intention of remaining in
    turns or school tuition?
                                                         the other jurisdiction for an indefinite and uncertain
  • Where does the taxpayer conduct his or her           period.
                                                         For example, temporary absence from a new domicile
  • Where does the taxpayer receive mail?                in a former domicile for the purpose of transacting
  • Where does the taxpayer receive unemploy-            business or for the sake of health, pleasure, or
    ment?                                                education, with a definite intention of returning to the
  • Where does the taxpayer record his or her            new domicile does not affect a person's domiciliary
    address for insurance policies, deeds, mort-
    gages, leases, passport, federal and local tax       A retired couple with two permanent homes, one
    returns, etc.?                                       inside Pennsylvania and one outside of Pennsylva-
  • Where was the taxpayer domiciled at birth?           nia, can only have one state of domicile. The state
                                                         of domicile does not change until there is a move to
  • Where does the taxpayer maintain safe                another state or country with the sincere intention of
    deposit boxes?                                       making a "new" permanent home there and aban-
  • Where does the taxpayer own a cemetery plot?         doning the previous domicile. The determination as
                                                         to their state of domicile should be made based on
  • Where is the taxpayer listed in the telephone
                                                         the factors above.
  • Where has the taxpayer obtained a homestead          A permanent abode is a house, apartment, dwelling
    exemption?                                           place or other residence an individual maintains as
                                                         his or her household for an indefinite period, whether
  • Where does the taxpayer gather for family and        he or she owns it or not. An abode is not permanent
    social events?                                       if it is occupied only during a fixed or limited period
  • Where is the taxpayer registered to vote?            of time for a particular purpose. Barracks, bachelor
                                                         officer's quarters, quarters on ships and other living
In order to establish a new domicile, the following      accommodations provided by one’s employer for a
three conditions must be met:                            definite period do not qualify as permanent dwelling
   • There must be evidence of a firm and definite       places; nor do college dormitories, fraternity houses,
     present intention to discontinue making the for-    sorority houses and off campus rentals by enrolled
     mer domicile one’s primary base of operations;      college students qualify as a permanent abode.
  • There must be evidence of a firm and definite        PA Resident
    present intention to make the new domicile           Residency in Pennsylvania, for tax purposes, may
    one’s primary base of operations; and                be established in two ways:
  • There must be evidence of actual physical                Domicile in Pennsylvania: If an individual is
    presence and actual abode (transient, tempo-             domiciled in Pennsylvania, he or she is con-
    rary or permanent) in the new location.                  sidered a resident unless he or she meets all
                                                             three of the following conditions:
If all three requirements are met, the date of the
                                                             • He or she did not maintain a permanent
change is the first day of actual physical presence in
                                                                abode in Pennsylvania for himself/herself or
the new location.
                                                                his/her family;
If an individual left their domicile to seek new              • He or she did maintain a permanent abode
employment and intended to remain in the other                  outside Pennsylvania throughout the entire
location only if they were to find employment, there            taxable year; and
is no change in domicile.
                                                              • He or she did not spend in the aggregate
Once established in a locality or state, the domicile           more than 30 days of the taxable year in
continues there until a new one is established. It is           Pennsylvania.
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PERSONAL INCOME TAX PREPARATION GUIDE                                       

     Day Test: If an individual maintains a perma-        any PA-sourced income that he/she may have
     nent abode in Pennsylvania and spends a              earned. Under the Military Spouses Residency
     total of 183 days or more of the taxable year        Relief Act, income earned by the spouse of a serv-
     in Pennsylvania, even though he or she is not        ice member shall not be considered taxable income
     domiciled in the commonwealth, he or she is          in the state that the service member is stationed if
     considered a resident.                               that state is not considered the spouse’s state of
                                                          residence or domicile.
An individual is a nonresident for PA tax purposes        If a service member is a PA resident serving outside
if he/she is not a resident as defined above.             of the Commonwealth of Pennsylvania and his/her
After determining the location with the greatest con-     spouse realizes income in that other state, the
nection, it is necessary to see if a new domicile         spouse’s income is only taxable to PA (if the spouse
outside of Pennsylvania has been established.             maintains his/her PA residency). A resident credit
                                                          will not be allowed for taxes paid to the other state.
Part-Year Resident                                        If the spouse receives income subject to employer
A part-year resident is an individual who moved to        withholding, he/she should request a refund of that
or from Pennsylvania during the taxable year with         withholding from the other state.
the intent of permanently changing domiciles. A
person moving into Pennsylvania, with the intent of       If the service member is a nonresident serving
residing here permanently, becomes a resident on          inside the Commonwealth of Pennsylvania and
the first day he or she is actually, physically present   his/her spouse realizes income in PA, that income
in the Commonwealth, regardless of reason or              is not taxable to PA as long as the spouse is con-
housing arrangement (such as employer provided            sidered a resident of another state. If the spouse
housing, living with relatives, etc).                     receives income subject to employer withholding,
                                                          he/she should request a refund of that withholding.
Persons in the Military or Foreign Service
                                                          This may be done by filing a PA personal income
Unless there is an intention to change domiciles, a
                                                          tax return and only reporting the PA tax that was
person generally neither acquires a new domicile by
                                                          withheld (shown in Box 17 of the W-2). They must
entering the armed forces nor loses the domicile
                                                          also provide a copy of their spouse’s military orders
that the person had upon entering. A person on mil-
                                                          showing they were ordered to service in PA, and a
itary duty is not prohibited, however, from acquiring
a new domicile where his or her family is stationed.      copy of their resident state’s driver’s license.
A person in the military and foreign service, or liv-     College Student
ing in a foreign country for other than a temporary       Generally, a child has the same domicile as his or
or transitory purpose while a lawful permanent            her parents or legal guardian. Becoming a legal
resident or citizen of the country, is treated as a       adult does not by itself separate a child from the
domiciliary of that country if the person:                parent or legal guardian’s domicile. The child
   • Is not an employee of the U.S., its agencies or      merely acquires the power to establish a separate
      instrumentalities (including members of the         or new domicile.
      armed forces and career appointees in the
                                                          Minor Child
      U.S. foreign service); and
                                                          The domicile of a minor child is the same as the
  • Does not hold an appointive office in the ex-         domicile of the child's parents. If the parents are
    ecutive branch of the government of the U.S.          separated, the child's domicile is the domicile of the
However, special rules may apply if the employee          parent with whom the child lives or that of the child's
or officer maintains a permanent place of abode           legal guardian.
there. An individual who is domiciled in Pennsylva-       Dual Residency
nia is considered a nonresident if he or she meets        A dual resident is an individual who is considered
all three of the requirements listed in the prior         a resident of two states for taxing purposes. If an
sections on Pennsylvania residency and domicile.          individual is a dual resident, he or she should report
For tax years 2008 and prior, the spouse of a serv-       the income that was earned during the taxable year
ice member serving in Pennsylvania was taxed on           from sources both within and outside of PA on
                                                                                                        Page 7
PERSONAL INCOME TAX PREPARATION GUIDE                                    

both states tax returns. This individual would then       • Net Income or Loss from the Operation of
request a resident credit for income sourced to the         a Business, Profession or Farm
state of statutory residence in the state that he/she       Pennsylvania taxes nonresident owners on all
is domiciled in.                                            allocated, or apportioned, income from the
NOTE: Special rules apply for PA residents working          operation of a business entity in Pennsylvania.
in states with reciprocal tax agreements with Penn-         If an individual derives income from sources
sylvania: Indiana, Maryland, New Jersey, Ohio,              inside and outside Pennsylvania, separate
Virginia or West Virginia. If a taxpayer is a PA            accounts and records that clearly reflect the
resident and also a resident of a reciprocal state, for     PA business activity should be maintained.
income tax purposes he/she may claim the PA                 Otherwise, that individual must file PA Sched-
resident credit. The reciprocal agreement with these        ule NRH to apportion the income.
states is not applicable since the taxpayer is subject    • Net Income or Loss from the Sale,
to tax as a resident in both Pennsylvania and the           Exchange or Disposition of Property
other state. The taxpayer must file PA Schedule             Pennsylvania taxes nonresidents on the gain
G-L for each state for which a resident credit is           from the sale of any real or tangible personal
being requested and enclose a copy of the resident          property located in Pennsylvania. Pennsylva-
tax return filed with the other state. This documen-        nia does not tax nonresidents on the gain from
tation will serve as proof that the other state taxed
                                                            the disposition of intangible property nor allow
him/her as a resident in that state and did not allow
                                                            the use of any loss from such a disposition to
a credit for tax paid to PA.
                                                            reduce other PA taxable gains. If a taxpayer
For example, Dan is a domiciliary of Pennsylvania           sells property in his or her former state before
for the entire taxable year. He leased an apartment         moving into Pennsylvania, no gain or loss on
in Maryland and worked 230 days in Maryland.                that sale is reportable to PA. However, if the
Maryland considers Dan to be a Maryland resident            taxpayer moved from Pennsylvania to another
for income tax purposes. He earned $10,000 in               state and then sold property or any other tan-
compensation for working in Maryland. Dan must              gible property in Pennsylvania, the gain must
report his compensation as PA-taxable income.               be reported.
Because he is a PA domiciliary, Dan may claim the
PA resident credit for taxes paid to Maryland as long     • Income or Loss from Rents, Royalties,
as he does not claim a credit on his Maryland return        Patents and Copyrights
for taxes paid to PA.                                       Pennsylvania taxes nonresidents on the net
                                                            income from the use of property located or
How Residents are Taxed
                                                            used in Pennsylvania.
A PA resident is taxed on all taxable income
received from sources inside and outside                  • Interest on Installment Sales
Pennsylvania.                                               Pennsylvania taxes nonresidents on interest
                                                            from Installment Sales as PA Schedule D-1
A PA resident may claim a resident credit for any tax
imposed by and paid to other states based upon
income which is not from Pennsylvania sources             • Interest on Business Accounts
and is subject to PA personal income tax. The PA            Pennsylvania taxes nonresidents on interest
Schedule G-L must be completed to claim this                on business accounts such as accounts
credit.                                                     receivable or a business checking account
How Nonresidents are Taxed                                  that is included in business income.
Nonresidents are taxed on the following types of          • Mortgage or Security Interests
income derived from sources within Pennsylvania:            Pennsylvania taxes nonresidents on mortgage
   • Compensation                                           or security interests on installment sales that
     Pennsylvania taxes nonresidents on compen-             are reported as such utilizing PA Schedule
     sation for services performed in Pennsylvania,         D-1. If PA Schedule D-1 is not used and the
     unless the taxpayer is a resident of one of the        entire gain is reported in the year sold, interest
     reciprocal agreement states.                           on an installment sale is not subject to tax.
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PERSONAL INCOME TAX PREPARATION GUIDE                                   

  • Intangible Personal Property                       expenses in earning or receiving PA gross com-
    Pennsylvania taxes nonresidents on intangible      pensation, PA Schedule NRH, Compensation
    personal property employed in a trade,             Apportionment, must be completed.
    profession, occupation or business carried on      A separate schedule must be completed for each
    in Pennsylvania. The nonresident taxpayer          employer for whom services within and outside
    does not report such a sale on a PA Schedule       Pennsylvania were performed.
    D, but includes the gain (loss) in determining
    net income or loss from the operation of a         If a nonresident taxpayer has income from a busi-
    business, profession or farm.                      ness, profession or farm derived from sources both
                                                       within and outside Pennsylvania and has records
  • Estate or Trust Income                             and accounts that accurately reflect the income
    Pennsylvania taxes nonresident beneficiaries       from Pennsylvania, he or she should report as PA
    on income from an estate or trust only to the      taxable income those amounts based on these ac-
    extent the PA-source income to the benefici-       counts and records. If the accounts and records do
    aries is taxable to nonresidents.                  not clearly reflect the PA-source income, the section
  • Gambling and Lottery Winnings                      titled Net Profits from Business or Farm Apportion-
    Pennsylvania taxes nonresidents on gambling        ment Formula on PA Schedule NRH must be
    and Lottery winnings by reason of a wager          completed.
    placed in this commonwealth, the conduct           EXCEPTION: Residents of a Reciprocal State
    of a game of chance or other gambling activity     Residents of Indiana, Maryland, New Jersey, Ohio,
    located in this commonwealth or the redemp-        Virginia or West Virginia are not subject to tax on
    tion of a Lottery prize from a Lottery conducted   compensation for services performed inside Penn-
    in this commonwealth, other than noncash           sylvania on which federal withholding is required,
    prizes of the Pennsylvania Lottery. Nonresi-       such as wages and salaries. However, if an Ohio
    dents are not subject to PA taxes on gambling      resident holds 20 percent or more share interest in
    or Lottery winnings, by reason of a wager          a subchapter S corporation and receives wages or
    placed outside this commonwealth, the con-         salary from that corporation, he or she will be sub-
    duct of a game of chance or other gambling         ject to PA income tax on the wages or salary from
    activity is located outside this commonwealth      said subchapter S corporation. This exception does
    or the redemption of a Lottery prize from a        not apply to income reported as compensation such
    Lottery conducted outside this commonwealth.       as executor fees on which there is no federal with-
                                                       holding requirement, nor does it apply to any other
NOTE: Nonresidents are not subject to PA tax on        class of income.
ordinary interest and dividends from investments or
                                                       Residents of these states must file Form REV-419,
gains realized on the sale, exchange or disposition
                                                       Employee’s Nonwithholding Application Certificate,
of intangible property. Losses on the sale of intan-
                                                       with their PA employers to be exempt from having
gible property may not be used to offset any taxable   PA tax withheld. In this situation, the PA employer
gain.                                                  should withhold and remit tax to the employee’s
Apportioning PA Taxable Income                         state of residency.
A nonresident employee who performs services           A resident of one of these reciprocal states whose
inside and outside Pennsylvania is subject to PA       employer withheld PA income tax must file Form
personal income tax on the net compensation for        PA-40 reflecting no compensation on Line 1a and
services performed within Pennsylvania. Usually        the PA tax withheld on Line 13. In addition, a signed
the employer will allocate and separately report on    copy of the other state’s resident income tax return
federal Form W-2, Wage and Tax Statement, the PA       (without any supporting documents) along with a
gross compensation.                                    copy of the actual W-2 and a statement that the
                                                       taxpayer was a resident of a reciprocal state must
If the employer did not report PA gross compensa-
                                                       be submitted.
tion on the W-2; or reported an incorrect amount as
PA gross compensation on the W-2; or the tax-          A PA resident working in one of these reciprocal
payer incurred unreimbursed employee business          states should request to his or her employer that
                                                                                                    Page 9
PERSONAL INCOME TAX PREPARATION GUIDE                                    

they withhold PA income tax. If the employer with-     residents or PA NRK-1 for nonresidents. A separate
holds the tax for the reciprocal state, the taxpayer   PA RK-1/PA NRK-1 must be submitted for each
must file for a refund from that state. If the PA      partnership in which the taxpayer is a member. If a
resident expects to receive income of $8,000 or        partnership fails to provide such forms, the tax-
more and the employer does not withhold PA             payer must attach a copy of the federal Schedule
income tax, the individual is required to make quar-   K-1 and classify the income or loss according to PA
terly estimated payments. Failure to make these        instructions for that class.
payments will result in an assessment of estimated
                                                       Each shareholder in a PA S corporation must attach
underpayment penalty.
                                                       to Form PA-40 a copy of PA-20S/PA-65 RK-1 for
How Part-Year Residents are Taxed                      residents or PA-20S/PA-65 NRK-1 for nonresidents.
A part-year resident is subject to PA personal         A separate PA-20S/PA-65 RK-1/NRK-1 must be
income tax as a resident for the portion of the year   submitted for each PA S corporation in which the
they resided in Pennsylvania. The same taxpayer is     taxpayer is a shareholder.
subject to PA personal income tax as a nonresident
for the remaining portion of the year if he or she     A PA return must be filed even if the PA-20S/PA-65
continues to work in Pennsylvania unless he or         RK-1 or PA-20S/PA-65 NRK-1 shows a loss.
she becomes a resident of a reciprocal state.          Members of the Armed Forces and Nonmilitary
Members of Partnerships and                            Persons on Federal Active Service
Subchapter S Corporations                              For PA personal income tax purposes, armed forces
A member of a partnership or a shareholder in a        include the Army, Navy, Air Force, Marine Corps
subchapter S corporation must report his or her        and Coast Guard. They do not include the Merchant
share of income, whether it was distributed or not.    Marines, Public Health Service or National Oceanic
The income or loss from the partnership or sub-        and Atmospheric Administration, except if/when
chapter S corporation must be reported in the same     any of these are incorporated into the armed forces
class from which the partnership or subchapter S       in times of war or emergency. Further, civilian
corporation received the income. A line is provided    employees for the Department of Defense, such as
on PA Schedules A, B, D, E and J specifically for      teachers and subcontractor employees, are not
partnership or subchapter S corporation income.        considered members of the armed forces.
Ordinary business income, farm income, dividends,
interest and rental income should be added to any      Resident Members of the Armed Forces
similar class of income and included on the appro-     Compensation earned by residents of Pennsylvania
priate line of Form PA-40. Composite returns can be    in the armed forces serving on federal active duty
filed on behalf of the nonresident shareholders or     outside Pennsylvania is not taxable as compensa-
partners. Sometimes an individual partner or share-    tion in Pennsylvania. This includes housing
holder pays an expense of a partnership or             allowances and a reserve unit's two-week summer
subchapter S corporation, such as interest             training. Military pay -- including housing allowances
expense. In this case, the individual may deduct the   received by a PA resident while not on federal
expense from his/her income only if the partnership    active duty or not on federal active duty training --
agreement or articles of incorporation require that    is fully taxable regardless of where the military serv-
the member or shareholder pay the business or          ice is performed. For example, all income received
rental expenses out of his or her personal assets.     for inactive duty while attending weekend drills
These expenses must be noted on a separate             is taxable. Also, compensation earned by a PA
attachment and do not relate to any existing           resident for military service on active duty in
schedule.                                              Pennsylvania is subject to personal income tax.
                                                       Under Act 182 of 2006, PA residents called to active
Do not add health care benefits to the PA wages of     military duty for disaster relief of emergency
shareholder-employees of PA S corporations as          management assistance inside or outside of
long as the plan is non-discriminatory, even though    Pennsylvania are exempt from taxation on the
such benefits must be added to federal wages.
                                                       compensation paid to them by either the U.S. gov-
Each partner in a business, profession or farm must    ernment or the commonwealth. The taxpayer has
attach to Form PA-40 a copy of the PA RK-1 for         the burden of establishing that income received for
Page 10
PERSONAL INCOME TAX PREPARATION GUIDE                                      

military service outside the commonwealth was           their family members are, however, subject to tax
earned while on federal active duty. The Depart-        on any other PA-source income normally taxable to
ment of Revenue will accept as proof the authority      nonresidents. This includes non-active duty pay
section of the military orders directing the taxpayer   such as weekend drills.
to federal active duty outside the commonwealth. If
                                                        National Guardsmen and U.S. Reservists
authority for the active duty is based upon a federal
                                                        National Guardsmen and U.S. Reservists ordered
statute, such as 32 U.S.C. §§ 316, 502, 503, 504 or
                                                        to active duty for training at a two-week summer
505, federal active duty will be presumed and the
                                                        encampment pursuant to Title 10 or Title 73 of the
income is excludable from taxable compensation.
                                                        U.S. Code are presumed to be on federal active
To exclude income from serving on active duty in
                                                        duty. Military pay received for such service is
the military outside of the commonwealth, residents
                                                        excludable from taxable compensation provided
must file a PA personal income tax return and
include their military W-2 Forms and copies of          the active duty training is performed outside the
their orders as evidence of active duty military        commonwealth. In addition, scholarships or remu-
pay earned outside Pennsylvania. If PA tax was          neration received by cadets and midshipmen at
withheld for active duty service outside the com-       U.S. military academies is not taxable because
monwealth, the taxpayer will be given a full refund     none of these academies are within Pennsylvania
of their withholding. If a portion of the military      and such individuals are on federal active duty.
service is active and a portion inactive, the tax-      When a civilian employer either makes up the
payer should provide documentation that gives a         difference in a National Guard member's or U.S.
detailed breakdown of active duty pay while outside     Reservist's regular wages or continues full pay for
of the commonwealth, combat zone pay (if appli-         the Guardsman or Reservist during the term of
cable) and all other military compensation. The         active duty, the differential or full pay continuation is
sum of these items must equal the reportable            considered taxable compensation. The Heroes
wages shown in Box 16 of the individual's military      Earnings Assistance and Relief Tax Act (HEART) of
W-2 Form. In addition, the documentation must           2008 is an exception to this. If the differential pay is
state the dates during which each component of          earned while in a combat zone or hazardous duty
compensation was received and must include a            zone, the income is not taxable.
copy of the individual's military orders ordering him
or her to a combat zone and/or placing him or her       A full-time member of the PA National Guard is
on active duty as a member of the U.S. armed            taxed on all of the following components of military
forces at a military facility outside the common-       compensation:
wealth during the year. A W-2 Form that identifies         • Inactive state duty pay received for services
income as active duty pay is not sufficient because          both within and outside the commonwealth;
it does not explain where the active duty occurred.       • Inactive federal duty pay received for serv-
The taxpayer may reduce the amount of reportable            ices as a member of the U.S. armed forces
military compensation on Line 1a of his or her Form         both within and outside the commonwealth;
PA-40 by the sum of the compensation received as
                                                          • Active federal duty pay received for services
combat zone pay and/or active duty pay received
                                                            within the commonwealth, unless called to
as a member of the U.S. armed forces outside the
commonwealth. If authority for active duty is based         active military duty for disaster relief of emer-
upon a PA statute, such as 51 P.S. §§ 508 or 3102,          gency management assistance; and
state active duty will be presumed and the income         • Active state duty pay received for services
received is taxable.                                        both within and outside the commonwealth,
                                                            unless called to active military duty for disaster
Nonresident Members of the Armed Forces
                                                            relief of emergency management assistance.
Nonresident military personnel who are serving on
federal active duty in Pennsylvania in compliance       Nonmilitary Persons on Federal Active Service
with military or naval orders are exempt from PA        A PA resident on federal active duty outside
personal income tax on their military pay and hous-     Pennsylvania is subject to tax on his or her
ing allowances because of federal law. They and         compensation.
                                                                                                       Page 11
PERSONAL INCOME TAX PREPARATION GUIDE                                     

NOTE: A PA resident in the U.S. foreign service is       his/her domicile, a service member’s domicile is the
not on active duty for PA purposes, and his or her       state he/she called home when he/she entered the
compensation is subject to tax.                          military. This is the state where the service member
Members of the Merchant Marines,                         files income tax returns (if that state has an income
Employees of the U.S. Public Health Service              tax) and where the service member intends to
and National Oceanic and Atmospheric                     return upon leaving the military.
Administration                                           Under MSRRA, a service member’s spouse neither
PA residents serving in the Merchant Marines, the        loses nor acquires domicile or residency by being
U.S. Public Health Service, the National Oceanic         absent or present in any U.S. tax jurisdiction solely
and Atmospheric Administration or contractors            to be with a service member complying with military
working in foreign countries, are subject to tax on      orders.
compensation whether earned within or outside PA
unless the U.S. President declares them by Exec-         II. Nonmilitary Spouses and Pennsylvania
utive Order to be military service during times of       Income Taxation
war or national emergency. Also included in this         For tax years beginning on or after Jan. 1, 2009,
category are those individuals who are employed by       compensation or other income earned in Pennsyl-
the Department of Defense as school teachers.            vania for services rendered by a service member’s
They are not covered under the Soldiers’ and             nonmilitary spouse is not taxable by Pennsylvania,
Sailors’ Civil Relief Act as they are civilian employ-   when:
ees of the Department of Defense and not                     • The nonmilitary spouse and service member
members of the armed forces.                                   have the same out-of-state domicile;
Military Spouses Residency Relief Act                      • The spouse is in Pennsylvania solely to be
The Military Spouses Residency Relief Act (MSRRA)            with the service member (see note below);
affects the treatment of residency and income for            and
spouses of military personnel for state and local tax      • The service member is in Pennsylvania
purposes for tax year 2009 and after.
                                                             complying with military orders.
The MSRRA permits a service member’s nonmili-
                                                         However, a nonmilitary spouse’s other income from
tary spouse to retain status as an out-of-state
                                                         Pennsylvania sources is subject to Pennsylvania
resident and source any nonmilitary compensation
                                                         personal income tax to the extent it is earned,
to the state of residence under the following
                                                         received or acquired from sources within the com-
                                                         monwealth as follows:
   • The service member must be in Pennsylvania
     in compliance with military orders.                   • By reason of ownership or disposition of an
                                                              interest in real or tangible personal property in
  • The service member’s spouse must be in                    Pennsylvania;
    Pennsylvania solely to be with his/her spouse.
                                                           • In connection with a trade or business in Penn-
  • The service member’s spouse must have the
                                                             sylvania; and/or
    same domicile (legal residence) as the service
    member.                                                • From intangible personal property employed in
                                                             a trade, profession, occupation or business
Conversely, if a Pennsylvania resident service               carried on in Pennsylvania.
member is serving outside Pennsylvania and
his/her nonmilitary spouse earns income in that          A qualifying nonmilitary spouse must have moved
other state – and the spouse claims relief under the     to Pennsylvania from another state, be in Pennsyl-
MSRRA – the spouse’s income is only taxable to           vania solely to accompany his/her active duty
Pennsylvania.                                            service member spouse stationed in Pennsylvania
                                                         in accordance with military orders, and have the
I. Domicile/Legal Residence
                                                         same state of residency as the service member.
A person generally does not acquire a new domicile
or legal residence by entering the armed forces.         Taxpayers claiming relief under MSRRA and a
Until a service member intentionally changes             refund of Pennsylvania income tax withheld, in
Page 12
PERSONAL INCOME TAX PREPARATION GUIDE                                    

addition to a standard personal income tax return      income tax under MSRRA should file a Pennsylva-
and appropriate schedules, must provide the            nia Form REV-419, Employee’s Nonwithholding
following:                                             Application Certificate, with his/her Pennsylvania
   • A copy of the service member’s current mil-       employer, claiming exemption from Pennsylvania
     itary orders showing the order to serve in        income tax withholding.
                                                       IV. Taxation of Service Members’ Military and
  • A copy of the service member’s military iden-      Nonmilitary Pay
    tification card;                                   MSRRA does not exempt from Pennsylvania
  • A copy of the nonmilitary spouse’s driver’s        personal income tax nonmilitary income earned by
    license from the resident state;                   a service member. However, a nonresident service
  • A copy of the nonmilitary spouse’s W-2, issued     member's active duty military income continues to
    by the employer;                                   be exempt from Pennsylvania personal income tax.
  • A copy of the nonmilitary spouse’s tax return      Combat Zones
    filed for the resident state;                      Combat zone pay received by a U.S. service
  • A copy of the nonmilitary spouse’s military ID     member is not taxable for PA personal income
    card, identifying the card-holder as the spouse;   tax purposes (see Title 72 P.S. § 7301(d)(vii)),
    and                                                nor is it considered poverty income for purposes of
                                                       the special tax forgiveness provisions (see Title 72
  • A copy of the service member’s federal
                                                       P.S. § 7301 (o.2)(vii)).
    Department of Defense Form 2058, State of
    Legal Residence Certificate (see note below).      For PA personal income tax purposes, combat
                                                       zones are areas designated by the U.S. President.
Taxpayers filing electronically should fax these
                                                       PA National Guard members and U.S. Reservists
documents within two to three days of e-filing to
717-772-4193, noting the taxpayer’s name and           are U.S. service members while they are serving in
Social Security number on each document. Those         a combat zone for purposes of this exclusion. The
filing paper returns should write “MSRRA” across       $500 combat zone pay exclusion limit for military
the top of Page 1 of the PA-40.                        officers contained in the Internal Revenue Code is
                                                       not in the state taxing statute. Refer to
Spouses of service members who meet these re-          for a listing of current combat zones.
quirements and who either had Pennsylvania
income tax withheld from wages or made other           PA residents serving in combat zones or qualified
Pennsylvania income tax payments for the tax year      hazardous duty areas designated by the U.S. Pres-
may receive refunds of such taxes paid by filing a     ident are given the same additional time to file their
Pennsylvania personal income tax return, PA-40.        PA personal income tax returns and make pay-
The nonmilitary spouse should report zero wages        ments as allowed for federal income tax purposes.
on Line 1 of his/her Pennsylvania personal income      The deadline is automatically extended to 180 days
tax return, and include the total Pennsylvania taxes   from the last day of service or the last day of con-
withheld (Box 17 of Form W-2) on Line 14.              tinuous hospitalization for injuries incurred in one of
                                                       these areas. Print “Combat Zone” at the top of the
NOTE: A nonmilitary spouse working in Pennsyl-
vania but living in a neighboring state in which the   return and mail it along with the military orders to:
military spouse is stationed, may also be eligible          REGARDING COMBAT ZONE
if the military spouse is required to be there per          PA DEPARTMENT OF REVENUE
military orders and all other requirements are met          BUREAU OF INDIVIDUAL TAXES
for state of domicile and reason for being in the           PO BOX 280600
location with the military service person.                  HARRISBURG PA 17128-0600
III. Discontinuation of Pennsylvania Income            If the return is filed electronically, a copy of the
Tax Withholding                                        military orders must still be submitted. Print
The nonmilitary spouse of a service member whose       “Combat Zone” at the top of the orders and fax them
wages/salary is exempt from Pennsylvania personal      to 717-772-4193 or mail them to:
                                                                                                    Page 13
PERSONAL INCOME TAX PREPARATION GUIDE                                       

     REGARDING COMBAT ZONE                               share of income from the property, even if only one
     PA DEPARTMENT OF REVENUE                            Social Security number and name appears on the
     ELECTRONIC FILING SECTION                           statement. Generally, such income is divided
     PO BOX 280507                                       equally between the owners.
     HARRISBURG PA 17128-0507
                                                         In the case where a taxpayer and spouse and a
Retirement Income                                        third party own real estate, such as parents and a
Retired or retainer pay of a member or former            son or daughter, the taxpayer and spouse are jointly
member of a uniform service calculated under             liable for one-half of any gain on the sale, and the
Chapter 71 of Title 10, U.S. Code (as amended) is        child is liable for the other half (unless the deed stip-
not taxable for PA personal income tax purposes.         ulates that the property is held as tenants in
Taxable Income Classes                                   common). However, for any other property, such as
PA personal income tax is levied at a flat rate on       bank accounts, each individual person is consid-
eight separate classes of income:                        ered an equal owner. In the case of ownership by
   • Compensation                                        a taxpayer and spouse and a child appearing as
                                                         owners on a bank account, each would be liable for
  • Interest                                             one-third of the interest earned.
  • Dividends and Capital Gains Distributions
  • Net Income or Loss from the Operation of a
                                                         INSTRUCTIONS FOR PREPARING
    Business, Profession or Farm                         FORM PA-40
  • Net Gains or Loss from Sale, Exchange or             If filling out a paper Form PA-40, be sure to fill in all
    Disposition of Property                              requested information by typing or printing legibly.

  • Net Income or Loss from Rents, Royalties,            Only taxpayers who request a PA-40 book will have
    Patents or Copyrights                                a book mailed to them.
  • Estate or Trust Income                               The Department of Revenue uses electronic data
  • Gambling and Lottery Winnings                        imaging to enter tax returns into its computer sys-
                                                         tem. Follow these instructions for entering Social
Gains and Losses                                         Security numbers, names, addresses and amounts
A gain in one class of taxable income cannot be off-     to help ensure personal income tax returns are
set against a loss in any other class of taxable         processed accurately and quickly.
income, nor may gains or losses be carried back or
                                                            • Print in black ink.
forward to another tax year. If a taxpayer has a net
loss in any income class, enter the amount of the          • Use UPPER CASE (CAPITAL) letters.
loss on the appropriate line on Form PA-40; use the        • Print one number or letter in each box.
actual dollar figure and fill in the oval indicating       • Leave a blank box between whole words.
loss for that category. A completed schedule must
be submitted even if the taxpayer incurred a loss in       • Print the taxpayer’s name – last, first, middle
a class of income. A spouse may only offset losses           initial and suffix on the correct lines.
against his or her own profit/gain/income. A spouse        • Print the taxpayer’s correct address.
may not offset a loss against the other spouse's           • Print the taxpayer’s apartment number, suite
profit or gain. However, if both spouses jointly own         number, room number, rural route, floor, etc on
a business which incurred a loss, they may each
                                                             the first line.
take their share of the loss against their other busi-
ness gains.                                                • Print the taxpayer’s PO Box on the second
Joint Income
If two or more persons, such as a taxpayer and             • Fill in all appropriate ovals completely.
spouse, own income-producing property -- includ-           • Show money amounts in whole dollars. Elim-
ing real estate, savings accounts or stock -- as joint       inate any amount less than $0.50 and increase
tenants, tenants by the entirety or tenants in com-          any amount between $0.50 and $0.99 to the
mon, each person must report his/her proportional            next highest dollar.
Page 14
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