PERSONAL INDIVIDUAL TAX PREPARATION GUIDE - FOR PERSONAL INCOME TAX RETURNS PA-40

 
PERSONAL INDIVIDUAL TAX
       PREPARATION GUIDE

FOR PERSONAL INCOME TAX RETURNS
             PA-40
                              DFO-02 (11-14)
PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                            www.revenue.pa.gov

Before reviewing how to assist taxpayers in the          and a readiness to help is the essence of cour-
preparation of the PA personal income tax return,        tesy. If a taxpayer starts complaining, do not
some key principles must be emphasized.                  take it personally. Listen to the entire complaint.
                                                         Do not interrupt as that will only make the tax-
CONFIDENTIALITY AND INTEGRITY                            payer more upset.
As a tax preparer through the Volunteer Income
Tax Assistance (VITA) and Tax Counseling for the         Questioning Stage
Elderly (TCE) programs, you have a special trust         As an interviewer, you must control the conver-
from the taxpayers who seek your help. To main-          sation and keep the taxpayer from asking
tain the integrity of this program and to respect        unrelated questions. It will be helpful to follow
the trust placed in you, tax information must be         these guidelines:
treated as confidential at all times. Also remem-          • Phrase questions very clearly, avoiding
ber that VITA/TCE tax preparers are prohibited               multiple questions.
from accepting compensation from taxpayers for
preparing PA personal income tax returns.                  • Repeat questions if necessary. Keep in mind
                                                             not everyone understands technical tax
QUALITY SERVICE                                              terms.
Quality service to taxpayers is our goal. It is im-
                                                           • Listen carefully to the taxpayer’s responses
portant to check your work for accuracy. Use a
                                                             and be patient.
calculator to verify mathematical calculations. If
you are uncertain of the proper method of re-              • To the extent possible, explain the return as
porting any transaction, consult your immediate              it is completed.
supervisor.
                                                           • Encourage people to ask questions if they
Your success as a tax preparer largely depends               do not understand.
on your ability to establish rapport with taxpay-
ers and interview taxpayers effectively. First, it is      • If you cannot answer a question, say "I do
important to put the taxpayer at ease. You will              not know but will find out."
ask questions to determine not only tax liability          • Research difficult questions in available tax
but also benefits and credits. For example, many             books, consult with your immediate supervi-
taxpayers are not aware of the special tax for-              sor or contact your local Department of
giveness provision or the exclusion of a gain                Revenue district office.
realized on the sale of a principal residence. If fil-
ing a paper return, you should have the taxpayer         NOTE: Questioning can be effective in determin-
sign and date the return upon completion and             ing sources of income. However, it is the
provide them with the proper address to which            taxpayer who is responsible for the accuracy of
the return should be mailed.                             the information provided. You, as a preparer, are
                                                         not accountable for any misinformation given by
INTERVIEWING TECHNIQUES                                  the taxpayer.
Introductory Stage
                                                         Summary Stage
It is important to establish a good relationship
                                                         When the return(s) is/are completed, you will
with the taxpayer. Greet the person you will be
                                                         need to give the taxpayer some additional infor-
helping in a friendly way and introduce yourself.
                                                         mation.
Smile and make eye contact. If anyone has waited
for a long time, apologize for the delay. Many peo-        • Have the taxpayer sign and date the return.
ple are nervous when it is time to prepare their             If filing a paper return and the filing status
income tax return, so take a few minutes to chat             on the return is Married, Filing Jointly, make
informally if necessary. Remember, good humor                sure both taxpayers sign the return. If one
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                       www.revenue.pa.gov

   taxpayer is not present, remind the tax-            • If a paper return is being prepared, instruct
   payer to have his/her spouse sign the                 the taxpayer to mail the return by midnight
   return.                                               on the due date, along with any monies
                                                         due.
 • If there is an overpayment and the tax-
   payer plans to move, advise the taxpayer            • If filing more than one tax return for a tax-
                                                         payer, advise the taxpayer to mail each
   to notify the local Department of Revenue
                                                         return separately.
   district office immediately to have the ad-
   dress updated. This will ensure the refund          • Ask if the taxpayer has any questions. Be
   is sent to the appropriate address. The post          sure to return all tax materials to the tax-
   office may not forward refund checks.                 payer, and give the taxpayer a copy of the
                                                         filed return to keep with his/her records.
 • If a balance is due, advise the taxpayer of
                                                       • Thank the taxpayer and remember to re-
   payment options. Payment may be remit-
                                                         spect the taxpayer's privacy. Keep all tax
   ted by check or money order made payable
                                                         information confidential.
   to the PA Department of Revenue. Instruct
   taxpayers to include the last four digits of      TAX ASSISTANCE GUIDELINES
   their primary Social Security number (SSN)        When assisting a taxpayer with the preparation
   and tax year on the front of the check or         of a tax return, you should not hesitate to con-
                                                     tact your immediate supervisor for guidance.
   money order. If a PA-V form is not available
                                                     Our main objective is to provide quality service,
   from the software used by the preparer or
                                                     which can only be achieved by working together.
   one is not prepared from the Fill-In PA-V on
   the department’s website, the department          FEDERAL/STATE ELECTRONIC
   advises each taxpayer to use the complete         FILING (e-file)
   SSN on the check or money order if faster         Taxpayers may file federal and PA income tax
   clearing is desired and more accurate post-       returns electronically, either through a tax pre-
   ing of the check is preferred. Otherwise, it      parer or by purchasing software.
   can take up to four weeks for a check to          VITA/TCE sites that e-file returns using special
   clear if there is insufficient information such   software should mail Form PA-8453 or PA-8879
   as taxpayer name, address, and tax year           to the following address:
   on the check. In the event the department
                                                          PA DEPARTMENT OF REVENUE
   cannot determine the correct account for
                                                          BUREAU OF INDIVIDUAL TAXES
   posting of the check, the taxpayer’s ac-               ELECTRONIC FILING SECTION
   count will eventually be billed and                    PO BOX 280507
   additional correspondence will need to be              HARRISBURG, PA 17128-0507
   addressed by the taxpayer. If your volun-
                                                     These forms should be submitted to the depart-
   teer site e-files returns using special
                                                     ment at the end of the tax preparation season
   software, the taxpayer may be able to             with a note stating they are from a volunteer
   remit the tax payment online. See                 site.A PA-8453 is not required if a taxpayer
   PAYMENT OPTIONS on Page 72 for addi-              signs the federal return with a federal self-select
   tional information.                               PIN and that PIN is carried over to the PA re-
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                        www.revenue.pa.gov

turn. If the practitioner’s PIN is being used or      PA FREE FILE
someone else other than the taxpayer is entering      PA Free File succeeds padirectfile and Telefile. PA
the taxpayer’s PIN on the federal return, PA-         Free File is a pair of electronic filing options that
8879 must be signed. The PIN does not need to         allow for simultaneous filing of state and federal
be entered twice and can be carried over from         returns and save the department and taxpayers
the federal return as long as the taxpayer under-     administrative costs. Free File tax software,
stands he/she is signing both returns.                available online from reputable vendors, pre-
                                                      pares state and federal filings for free for
The department also allows statements to be           qualifying individuals with federal adjusted gross
filed electronically through the electronic return    income of $60,000 or less for the tax year. Free
originators (ERO) with the return. These state-       Fillable Forms are online versions of tax forms
ments describe why certain income was or was          with basic math calculations designed for people
                                                      comfortable preparing their own returns. Free
not reported or why a particular paper document
                                                      Fillable Forms may be submitted electronically
is being retained by the ERO (i.e. military orders,
                                                      for free or by paper. Free Fillable Forms are gen-
stipend, extension form).
                                                      erally available to all Pennsylvania taxpayers
Electronic filing provides the following benefits:    except nonresidents, part-year residents and
                                                      those with K-1 forms or resident credits. In ad-
  • Accuracy. Computer programs catch mis-            dition, taxpayers who have already filed their
     takes before they become problems.               federal tax return for free can use the fillable
                                                      forms to file their PA-40 return electronically for
  • Acknowledgement. The department elec-
                                                      free.
     tronically notifies the preparer or ERO that
     the return was received and accepted.
                                                      ADDITIONAL INFORMATION FOR EROS
                                                      The department requires all PA electronic returns
  • Refunds. With electronic filing, the tax-         to be accepted by the Internal Revenue Service
     payer has the option to receive a refund via     (IRS). Once accepted by the IRS, the ERO does
     direct deposit. This service is not available    not have to register separately with the PA De-
     when filing a paper return.                      partment of Revenue.

  • File Now, Pay Later. A return can be filed        ACKNOWLEDGEMENT OF PA
     anytime before the due date. If tax is owed,     ELECTRONIC RETURNS
     payments may be made by authorizing an           The Pennsylvania Department of Revenue will ac-
     electronic funds withdrawal. This withdrawal     knowledge the receipt of a return. However, the
     can be scheduled for a later date and may        acknowledgement system will now only inform a
                                                      taxpayer if a return was accepted or rejected. If
     be paid from the taxpayer’s checking or sav-
                                                      a return is rejected, the rejection message will
     ings account. The taxpayer may also choose
                                                      identify the reject as a business rule or schema
     to remit payment via check or money order
                                                      error only. Refer to software instructions or con-
     with the pre-printed PA-V Payment Voucher,       tact the software representative for information
     which should be mailed by midnight on the        regarding responsibilities for accessing and
     due date of the return.                          retrieving state acknowledgements.
                                                                                               Page 3
PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                     www.revenue.pa.gov

ACCEPTED PENNSYLVANIA                                • PA Schedule O
FORMS/SCHEDULES                                      • PA Schedule T - Gambling and Lottery
The following Pennsylvania forms may be trans-         Winnings
mitted electronically (refund, equal and balance     • PA REV-1630 - Underpayment of Estimated
due, with or without payment), and payment             Tax by Individuals
must be made by electronic funds withdrawal,
check, money order or credit card.                   • PA REV-1630A - Underpayment of Estimated
                                                       Tax by Farmers
  • Form PA-40 - Pennsylvania Individual In-
    come Tax Return (includes nonresident and        • PA Schedule 19 - Sale of a Principal
                                                       Residence
    Part-Year Resident returns)
                                                     • PA Schedule NRH - Apportioning Income by
  • PA Schedule A - Interest
                                                       Nonresident Individuals
  • PA Schedule B - Dividends
                                                     • Schedule PA-40X Amended Schedule
  • PA Schedule C - Profit or Loss From              • W-2 Forms
    Business or Profession
                                                     • 1099-R Forms
  • PA Schedule D - Sale, Exchange or
    Disposition of Property                          • W-2G Forms

  • PA Schedule D-1 - Computation of               NOTE: Federal K-1s are not supported in PA
    Installment Sale Income                        e-File software. However, software packages that
                                                   offer pdf file attachments can include the federal
  • PA Schedule D-71 - Sale or Exchange of         K-1 and its related supporting statements via pdf
    Property Prior to June 1, 1971                 file with the return if the income and losses from
                                                   that K-1 are also input into the return.
  • PA Schedule E - Rent, Royalty, Patent and
    Copyright Income or Loss
                                                   EXCLUSIONS FROM ELECTRONIC
  • PA Schedule F - Farm Income and Expenses       FILING
  • PA Schedule G-L - Out-of-State Credit, Long    The following documents are excluded from Fed-
    Form                                           eral/State electronic filing:

  • PA Schedule J - Estate & Trust Income            • Non-calendar, fiscal year returns;

  • PA Schedule W-2S - Wage Statement                • Amended individual income tax returns for
    Summary                                            years prior to 2010;
                                                     • Form PA-40NRC - Nonresident Consolidated
  • PA Schedule SP - Tax Forgiveness Credit
                                                       Income Tax Returns;
  • PA Schedule RK-1- Resident Schedule of PA
                                                     • Form PA-40 KOZ – PA Income Tax Keystone
    S Shareholder/Partner Pass-Through
                                                       Opportunity Zone Return;
    Income, Loss and Credits
                                                     • Returns containing forms/schedules not
  • PA Schedule NRK-1- Non-Resident Schedule
                                                       listed under federal forms; or “Accepted
    of PA S Shareholder/Partner Pass-Through
                                                       Pennsylvania Forms/Schedules”.
    Income, Loss and Credits
                                                   NOTE: Electronic filing of Form PA-41 is only
  • PA Schedule UE - Allowable Employee
                                                   available through some paid preparers but is not
    Business Expenses
                                                   available by department or volunteer tax prepar-
  • PA Schedule OC                                 ers. Electronic filing of Form PA-20S/PA65 S
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                        www.revenue.pa.gov

Corporation/Partnership Information Return is        FORM PA-40 GENERAL INSTRUCTIONS
available from most paid preparers but is not
                                                     Filing Due Date
available by department employees or volunteer
                                                     The due date for filing the PA personal income
tax preparers.
                                                     tax return is the same due date as it is for fed-
CONTACT INFORMATION FOR                              eral income tax returns. Generally, that date is
E-FILE INQUIRIES                                     April 15 or the next business day if the 15th falls
                                                     on a Saturday, Sunday or holiday. If the IRS de-
The PA Department of Revenue has telephone
                                                     termines that Emancipation Day for Washington,
lines for exclusive use by EROs, transmitters
                                                     DC is a holiday, the due date will be the next
and software developers participating in the
                                                     business day after the holiday.
Federal/State e-file program. The operating
hours are Monday through Friday, 7:30 a.m. to        Extension
5:00 p.m. (except holidays).                         A taxpayer may request an extension of time to
                                                     file, however this does not extend the payment
NOTE: The following phone number is not to be
                                                     deadline. If the taxpayer anticipates a tax bal-
provided to taxpayers.
                                                     ance due, he/she should submit payment with
Help Desk 717-787-4017.                              the extension request.

You may forward correspondence for the elec-         Extensions may be requested in two ways:
tronic filing program to the following address:        • The taxpayer can submit Form REV-276,
     PA DEPARTMENT OF REVENUE                            Application for Extension of Time to File,
     BUREAU OF INDIVIDUAL TAXES                          postmarked on or before the April 15 due
     PO BOX 280507                                       date.
     HARRISBURG PA 17128-0507                          • The taxpayer may submit a copy of a feder-
     FAX: (717) 772-4193 or (717) 787-2840               ally approved extension of time to file with
                                                         his/her state return.
You may also fax information concerning
electronically filed returns to the department       An extension grants an individual an additional
using the Personal Income Tax Fax Cover Sheet,       six months to file a return. People outside the
DEX-93, which is also available from the Depart-     country are automatically granted a two-month
                                                     extension to file by June 15.
ment of Revenue’s website,
www.revenue.pa.gov. The fax cover sheet in-          Who must file?
cludes the proper fax numbers for                    Any PA resident, nonresident or part-year resi-
providing specific information regarding electron-   dent who:
ically filed returns. Using the fax cover sheet        • Received total PA gross taxable income in
enables the department to more quickly and               excess of $33 during the tax year, even if no
accurately attach information to the correct             tax is due; and/or
taxpayer’s return and further allows for faster        • Incurred a loss from any transaction as an
turnaround times for processing of taxpayer cor-         individual, sole proprietor, partner in a part-
respondence.                                             nership or PA S corporation shareholder.
For a full explanation of the Federal/State e-file   Minors. PA law does not exempt a minor from the
program, please review the Pennsylvania              above requirements to file a PA tax return even if
Fed/State E-file Handbook, REV-993. This book-       the minor is claimed as a dependent on a federal
let may be downloaded from the Department of         return. A parent must file a return on behalf of
Revenue’s website, www.revenue.pa.gov.               the minor child in such circumstances.
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                      www.revenue.pa.gov

Decedents. The executor, administrator or other        • Where does the taxpayer fulfill local tax
person responsible for the affairs of a decedent         obligations?
must file a PA tax return on behalf of the dece-       • Where is the taxpayer employed?
dent if the decedent could not or did not elect to
file a joint return with a surviving spouse.           • Where does the taxpayer own real estate fit
                                                         for year-round living?
Determining Residency
                                                       • Where does the taxpayer maintain a driver's
An individual may have to pay income tax as a PA
                                                         license and vehicle registration?
resident even if he or she is not considered a PA
resident for other purposes. For income tax pur-       • Where does the taxpayer maintain profes-
poses, one must consider both where he or she is         sional licenses?
domiciled and where he or she maintained a per-        • Where does the taxpayer maintain union
manent place of abode during the taxable year.           membership?
An individual’s domicile is their fixed and perma-     • Where does the taxpayer declare residency
nent home to which they always have the                  for fishing or hunting licenses, income tax re-
intention of returning to whenever absent, even          turns or school tuition?
though they may live elsewhere. An individual can
                                                       • Where does the taxpayer conduct his or her
have only one state of domicile at any given time.
                                                         business?
Below are some factors to consider when deter-
mining an individual’s place of domicile:              • Where does the taxpayer receive mail?

  • Where does the taxpayer spend the greatest         • Where does the taxpayer receive
    amount of time during the taxable year?              unemployment?

  • Where does the taxpayer maintain a perma-          • Where does the taxpayer record his or her
    nent abode for the longest amount of time            address for insurance policies, deeds, mort-
                                                         gages, leases, passport, federal and local tax
    during the taxable year?
                                                         returns, etc.?
  • Where does the taxpayer support his or her
                                                       • Where was the taxpayer domiciled at birth?
    spouse and children?
                                                       • Where does the taxpayer maintain safe de-
  • Where does the taxpayer purchase the ne-
                                                         posit boxes?
    cessities of life?
                                                       • Where does the taxpayer own a cemetery
  • Where does the taxpayer have doctors,
                                                         plot?
    lawyers and accountants?
                                                       • Where is the taxpayer listed in the telephone
  • Where does the taxpayer house his or her
                                                         directory?
    pets?
                                                       • Where has the taxpayer obtained a home-
  • Where does the taxpayer have active bank-
                                                         stead exemption?
    ing accounts?
                                                       • Where does the taxpayer gather for family
  • Where does the taxpayer worship regularly?           and social events?
  • Where does the taxpayer participate in so-
                                                       • Where is the taxpayer registered to vote?
    cial, fraternal or athletic organizations,
    lodges or country clubs?                         In order to establish a new domicile, the following
                                                     three conditions must be met:
  • Where does the taxpayer have works of art,
    expensive furniture, family portraits or           • There must be evidence of a firm and defi-
    heirlooms?                                           nite present intention to discontinue making
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                         www.revenue.pa.gov

     the former domicile one’s primary base of         maintains as his or her household for an indefi-
     operations;                                       nite period, whether he or she owns it or not. An
                                                       abode is not permanent if it is occupied only dur-
  • There must be evidence of a firm and defi-
                                                       ing a fixed or limited period of time for a
    nite present intention to make the new
                                                       particular purpose. Barracks, bachelor officer's
    domicile one’s primary base of operations;
    and                                                quarters, quarters on ships and other living ac-
                                                       commodations provided by one’s employer for a
  • There must be evidence of actual physical          definite period do not qualify as permanent
    presence and actual abode (transient, tem-         dwelling places; nor do college dormitories, fra-
    porary or permanent) in the new location.          ternity houses, sorority houses and off campus
If all three requirements are met, the date of the     rentals by enrolled college students qualify as a
change is the first day of actual physical pres-       permanent abode.
ence in the new location.
                                                       PA Resident
If an individual left their domicile to seek new       Residency in Pennsylvania, for tax purposes, may
employment and intended to remain in the other         be established in two ways:
location only if they were to find employment,
there is no change in domicile.                            Domicile in Pennsylvania: If an individual
                                                           is domiciled in Pennsylvania, he or she is
Once established in a locality or state, the domi-
                                                           considered a resident unless he or she
cile continues there until a new one is established.
                                                           meets all three of the following conditions:
It is not dependent upon continuous physical
presence. It is not abandoned by absence or                • He or she did not maintain a permanent
even by presence in a former domicile, no matter             abode in Pennsylvania for himself/herself
how long continued, if, in leaving and during the            or his/her family;
absence, there is not firm, sincere, unconditional
                                                           • He or she did maintain a permanent
intention of remaining in the other jurisdiction for
                                                             abode outside Pennsylvania throughout
an indefinite and uncertain period.
                                                             the entire taxable year; and
For example, temporary absence from a new
                                                           • He or she did not spend in the aggregate
domicile in a former domicile for the purpose of
                                                             more than 30 days of the taxable year in
transacting business or for the sake of health,
                                                             Pennsylvania.
pleasure, or education, with a definite intention
of returning to the new domicile does not affect a         Day Test: If a taxpayer maintains a perma-
person's domiciliary status.                               nent abode in Pennsylvania and spends a
A retired couple with two permanent homes, one             total of 183 days or more of the taxable
inside Pennsylvania and one outside of Pennsyl-            year in Pennsylvania, even though he or she
vania, can only have one state of domicile. The            is not domiciled in the commonwealth, he or
state of domicile does not change until there is a         she is considered a resident.
move to another state or country with the sin-
cere intention of making a "new" permanent             Nonresident
home there and abandoning the previous domi-           An individual is a nonresident for PA tax purposes
cile. The determination as to their state of           if he/she is not a resident as defined above.
domicile should be made based on the factors           After determining the location with the greatest
above.                                                 connection, it is necessary to see if a new domi-
A permanent abode is a house, apartment,               cile outside of Pennsylvania has been
dwelling place or other residence an individual        established.
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                        www.revenue.pa.gov

Part-Year Resident                                    If a PA resident service member is serving out-
A part-year resident is an individual who moved       side of the Commonwealth of Pennsylvania and
to or from Pennsylvania during the taxable year       his/her spouse realizes income in that other
with the intent of permanently changing domi-         state, the spouse’s income is only taxable to PA
ciles. A person moving into Pennsylvania with         (if the spouse maintains his/her PA residency). A
the intent of residing here permanently becomes       resident credit will not be allowed for taxes paid
a resident on the first day he or she lives here      to the other state. If the spouse receives income
regardless of reason or housing arrangement           subject to employer withholding, he/she should
(such as employer provided housing, living with       request a refund of that withholding from the
relatives, etc).                                      other state.
Persons in the Military or Foreign Service            If the service member is a nonresident serving
Unless there is an intention to change domiciles,     inside the Commonwealth of Pennsylvania and
a person generally does not acquire a new domi-       his/her spouse realizes income in PA, that in-
cile by entering the armed forces or lose the         come is not taxable to PA as long as the spouse
domicile that the person had upon entering. A         is considered a resident of another state. If the
person on military duty is not prohibited, how-       spouse receives income subject to employer
ever, from acquiring a new domicile where his or      withholding, he/she should request a refund of
her family is stationed. A person in the military     that withholding. This may be done by filing a PA
and foreign service, or living in a foreign country   personal income tax return and only reporting
for other than a temporary or transitory purpose      the PA tax that was withheld (shown in Box 17 of
while a lawful permanent resident or citizen of       the W-2). They must also provide a copy of their
the country, is treated as a domiciliary of that      spouse’s military orders showing they were or-
country if the person:                                dered to service in PA, and a copy of their
                                                      resident state’s driver’s license.
  • Is not an employee of the U.S., its agencies
    or instrumentalities (including members of        College Student
    the armed forces and career appointees in         Generally, a child has the same domicile as his or
    the U.S. foreign service); and                    her parents or legal guardian. Becoming a legal
                                                      adult does not by itself separate a child from the
  • Does not hold an appointive office in the ex-
    ecutive branch of the government of the           parent or legal guardian’s domicile. The child
    U.S.                                              merely acquires the power to establish a sepa-
                                                      rate or new domicile.
However, special rules may apply if the employee
or officer maintains a permanent place of abode       Minor Child
there. An individual who is domiciled in Pennsyl-     The domicile of a minor child is the same as the
vania is considered a nonresident if meeting all      domicile of the child's parents. If the parents are
three of the requirements listed in the prior sec-    separated, the child's domicile is the domicile of
tions on Pennsylvania residency and domicile.         the parent with whom the child lives or that of
                                                      the child's legal guardian.
For tax years 2008 and prior, the spouse of a
service member serving in Pennsylvania was            Dual Residency
taxed on any PA-sourced income that he/she            A dual resident is an individual who is considered
may have earned. Under the Military Spouses           a resident of two states for taxing purposes. If an
Residency Relief Act, income earned by the            individual is a dual resident, he or she should re-
spouse of a service member shall not be consid-       port the income that was earned during the
ered taxable income in the state that the service     taxable year from sources both within and out-
member is stationed if that state is not consid-      side of PA on both states tax returns. This
ered the spouses resident or domiciliary state.       individual would then request a resident credit
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                       www.revenue.pa.gov

for income sourced to the state of statutory resi-     • Compensation
dence in the state that he/she is domiciled in.          Pennsylvania taxes nonresidents on com-
                                                         pensation for services performed in
NOTE: Special rules apply for PA residents work-
                                                         Pennsylvania, unless the taxpayer is a resi-
ing in states with reciprocal tax agreements with
                                                         dent of one of the reciprocal agreement
Pennsylvania: Indiana, Maryland, New Jersey,
                                                         states.
Ohio, Virginia or West Virginia. If a taxpayer is a
PA resident and also a tax resident for income tax     • Net Income or Loss from the Operation
purposes of a reciprocal state, he/she may claim         of a Business, Profession or Farm
the PA resident credit. The reciprocal agreement         Pennsylvania taxes nonresident owners on
with these states is not applicable since the tax-       all allocated, or apportioned, income from
payer is subject to tax as a resident in both            the operation of a business entity in Penn-
Pennsylvania and the other state. The taxpayer           sylvania. If an individual derives income
must file PA Schedule G-L for each state for which       from sources inside and outside Pennsylva-
a resident credit is being requested and enclose a       nia, separate accounts and records that
copy of the resident tax return filed with the other     clearly reflect the PA business activity
state. This documentation will serve as proof that       should be maintained. Otherwise, that indi-
the other state taxed him/her as a resident in that      vidual must file PA Schedule NRH to
state and did not allow a credit for tax paid to PA.     apportion the income.

For example, Dan is a domiciliary of Pennsylvania      • Net Income or Loss from the Sale,
for the entire taxable year. He leased an apart-         Exchange or Disposition of Property
ment in Maryland and worked 230 days in                  Pennsylvania taxes nonresidents on the gain
Maryland. Maryland considers Dan to be a Mary-           from the sale of any real or tangible per-
land resident for income tax purposes. He earned         sonal property located in Pennsylvania.
$10,000 in compensation for working in Mary-             Pennsylvania does not tax nonresidents on
land. Dan must report his compensation as                the gain from the disposition of intangible
PA-taxable income. Because he is a PA domicil-           property nor allow the use of any loss from
iary, Dan may claim the PA resident credit for           such a disposition to reduce other PA tax-
taxes paid to Maryland as long as he does not            able gains. If a taxpayer sells property in his
claim a credit on his Maryland return for taxes          or her former state before moving into
paid to PA.                                              Pennsylvania, no gain or loss on that sale is
                                                         reportable to PA. However, if the taxpayer
How Residents are Taxed                                  moved from Pennsylvania to another state
A PA resident is taxed on all taxable income re-         and then sold property or any other tangible
ceived from sources inside and outside                   property in Pennsylvania, the gain must be
Pennsylvania.                                            reported.
A PA resident may claim a resident credit for any      • Income or Loss from Rents, Royalties,
tax imposed by and paid to other states based            Patents and Copyrights
upon income which is not from Pennsylvania               Pennsylvania taxes nonresidents on the net
sources and is subject to PA personal income tax.        income from the use of property located or
The PA Schedule G-L must be completed to claim           used in Pennsylvania.
this credit.
                                                       • Interest on Installment Sales
How Nonresidents are Taxed                               Pennsylvania taxes nonresidents on interest
Nonresidents are taxed on the following types of         from Installment Sales as PA Schedule D-1
income derived from sources within Pennsylvania:         Income.
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                     www.revenue.pa.gov

 • Interest on Business Accounts                   NOTE: Nonresidents are not subject to PA tax on
   Pennsylvania taxes nonresidents on interest     ordinary interest and dividends from investments
   on business accounts such as accounts re-       or gains realized on the sale, exchange or dispo-
   ceivable or a business checking account that    sition of intangible property. Losses on the sale
   is included in business income.                 of intangible property may not be used to offset
                                                   any taxable gain.
 • Mortgage or Security Interests
   Pennsylvania taxes nonresidents on mort-        Apportioning PA Taxable Income
   gage or security interests on installment       A nonresident employee who performs services
   sales that are reported as such utilizing PA    inside and outside Pennsylvania is subject to PA
   Schedule D-1. If PA Schedule D-1 is not         personal income tax on the net compensation for
   used and the entire gain is reported in the     services performed within Pennsylvania. Usually
   year sold, interest on an installment sale is   the employer will allocate and separately report
   not subject to tax.                             on federal Form W-2, Wage and Tax Statement,
                                                   the PA gross compensation.
 • Intangible Personal Property
   Pennsylvania taxes nonresidents on intangi-     If the employer did not report PA gross compen-
   ble personal property employed in a trade,      sation on the W-2; or reported an incorrect
   profession, occupation or business carried      amount as PA gross compensation on the W-2;
   on in Pennsylvania. The nonresident tax-        or the taxpayer incurred unreimbursed employee
   payer does not report such a sale on a PA       business expenses in earning or receiving PA
   Schedule D, but includes the gain (loss) in     gross compensation, PA Schedule NRH, Compen-
   determining net income or loss from the op-     sation Apportionment, must be completed.
   eration of a business, profession or farm.      A separate schedule must be completed for each
 • Estate or Trust Income                          employer for whom services within and outside
   Pennsylvania taxes nonresident beneficiaries    Pennsylvania were performed.
   on income from an estate or trust only to       If a nonresident taxpayer has income from a
   the extent the PA-source income to the ben-     business, profession or farm derived from sources
   eficiaries is taxable to nonresidents.          both within and outside Pennsylvania and has
 • Gambling and Lottery Winnings                   records and accounts that accurately reflect the
   Pennsylvania taxes nonresidents on gam-         income from Pennsylvania, he or she should re-
   bling and Lottery winnings by reason of a       port as PA taxable income those amounts based
                                                   on these accounts and records. If the accounts
   wager placed in this commonwealth, the
                                                   and records do not clearly reflect the PA-source
   conduct of a game of chance or other gam-
                                                   income, the section titled Net Profits from Busi-
   bling activity located in this commonwealth
                                                   ness or Farm Apportionment Formula on PA
   or the redemption of a Lottery prize from a
                                                   Schedule NRH must be completed.
   Lottery conducted in this commonwealth,
   other than prizes of the Pennsylvania Lot-      EXCEPTION: Residents of a Reciprocal State
   tery. Nonresidents are not subject to PA        Residents of Indiana, Maryland, New Jersey, Ohio,
   taxes on gambling or Lottery winnings, by       Virginia or West Virginia are not subject to tax on
   reason of a wager placed outside this com-      compensation for services performed inside Penn-
   monwealth, the conduct of a game of             sylvania on which federal withholding is required
   chance or other gambling activity is located    such as wages and salaries. However, if an Ohio
   outside this commonwealth or the redemp-        resident holds 20 percent or more share interest
   tion of a Lottery prize from a Lottery          in a subchapter S corporation and receives wages
   conducted outside this commonwealth.            or salary from that corporation, he or she will be
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                        www.revenue.pa.gov

subject to PA income tax on the wages or salary       share of income, whether it was distributed or
from said subchapter S corporation. This excep-       not. The income or loss from the partnership or
tion does not apply to income reported as             subchapter S corporation must be reported in the
compensation such as executor fees on which           same class from which the partnership or sub-
there is no federal withholding requirement, nor      chapter S corporation received the income. A line
does it apply to any other class of income.           is provided on PA Schedules A, B, D, E and J
                                                      specifically for partnership or subchapter S cor-
Residents of these states must file Form REV-         poration income. Ordinary business income, farm
420, Employee's Statement of Nonresidence in          income, dividends, interest and rental income
Pennsylvania, with their PA employers to be ex-       should be added to any similar class of income and
empt from having PA tax withheld. In this             included on the appropriate line of Form PA-40.
situation, the PA employer should withhold and        Composite returns can be filed on behalf of the
remit tax to the employee’s state of residency.       nonresident shareholders or partners. Some-
A resident of one of these reciprocal states          times an individual partner or shareholder pays
whose employer withheld PA income tax must file       an expense of a partnership or subchapter S cor-
Form PA-40 reflecting no compensation on Line         poration, such as interest expense. In this case,
1a and the PA tax withheld on Line 13. In addi-       the individual may deduct the expense from
tion, a signed copy of the other state’s resident     his/her income only if the partnership agreement
income tax return (without any supporting docu-       or articles of incorporation require that the mem-
ments) along with a copy of the actual W-2 and a      ber or shareholder pay the business or rental
statement that the taxpayer was a resident of a       expenses out of his or her personal assets. These
reciprocal state must be submitted.                   expenses must be noted on a separate attach-
                                                      ment and do not relate to any existing schedule.
A PA resident working in one of these reciprocal
states should request to his or her employer that     Do not add health care benefits to the PA wages
they withhold PA income tax. If the employer          of shareholder-employees of PA S corporations
withholds the tax for the reciprocal state, the       as long as the plan is non-discriminatory, even
taxpayer must file for a refund from that state. If   though such benefits must be added to federal
                                                      wages.
the PA resident expects to receive income of
$8,000 or more and the employer does not with-        Each partner in a business, profession or farm
hold PA income tax, the individual is required to     must attach to Form PA-40 a copy of the PA RK-1
make quarterly estimated payments. Failure to         for residents or PA NRK-1 for nonresidents. A
make these payments will result in an assess-         separate PA RK-1/PA NRK-1 must be submitted
ment of estimated underpayment penalty.               for each partnership in which the taxpayer is a
                                                      member. If a partnership fails to provide such
How Part-Year Residents are Taxed
                                                      forms, the taxpayer must attach a copy of the
A part-year resident is subject to PA personal in-
                                                      federal Schedule K-1 and classify the income or
come tax as a resident for the portion of the year
                                                      loss according to PA instructions for that class.
they resided in Pennsylvania. The same taxpayer
is subject to PA personal income tax as a nonresi-    Each shareholder in a PA S corporation must at-
dent for the remaining portion of the year if he or   tach to Form PA-40 a copy of PA-20S/PA-65 RK-1
she continues to work in Pennsylvania unless he       for residents or PA-20S/PA-65 NRK-1 for nonresi-
or she becomes a resident of a reciprocal state.      dents. A separate PA-20S/PA-65 RK-1/NRK-1
                                                      must be submitted for each PA S corporation in
Members of Partnerships and Subchapter
                                                      which the taxpayer is a shareholder.
S Corporations
A member of a partnership or a shareholder in a       A PA return must be filed even if the PA-20S/PA-65
subchapter S corporation must report his or her       RK-1 or PA-20S/PA-65 NRK-1 shows a loss.
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                          www.revenue.pa.gov

Members of the Armed Forces and Nonmili-                a PA personal income tax return and include their
tary Persons on Federal Active Service                  military W-2 Forms and copies of their orders as
For PA personal income tax purposes, armed              evidence of active duty military pay earned out-
forces include the Army, Navy, Air Force, Marine        side Pennsylvania. If PA tax was withheld for
Corps and Coast Guard. They do not include the          active duty service outside the commonwealth,
Merchant Marines, Public Health Service or Na-          the taxpayer will be given a full refund of their
tional Oceanic and Atmospheric Administration,          withholding. If a portion of the military service is
except if/when any of these are incorporated into       active and a portion inactive, the taxpayer should
the armed forces in times of war or emergency.          provide documentation that gives a detailed
Further, civilian employees for the Department of       breakdown of active duty pay while outside of the
Defense, such as teachers and subcontractor em-         commonwealth, combat zone pay (if applicable)
ployees, are not considered members of the              and all other military compensation. The sum of
armed forces.                                           these items must equal the reportable wages
                                                        shown in Box 16 of the individual's military W-2
Resident Members of the Armed Forces
                                                        Form. In addition, the documentation must state
Compensation earned by residents of Pennsylva-
                                                        the dates during which each component of com-
nia in the armed forces serving on federal active
                                                        pensation was received and must include a copy
duty outside Pennsylvania is not taxable as com-
                                                        of the individual's military orders ordering him or
pensation in Pennsylvania. This includes housing
                                                        her to a combat zone and/or placing him or her
allowances and a reserve unit's two-week summer
training. Military pay -- including housing al-         on active duty as a member of the U.S. armed
lowances received by a PA resident while not on         forces at a military facility outside the common-
federal active duty or not on federal active duty       wealth during the year. A W-2 Form that identifies
training -- is fully taxable regardless of where the    income as active duty pay is not sufficient be-
military service is performed. For example, all in-     cause it does not explain where the active duty
come received for inactive duty while attending         occurred. The taxpayer may reduce the amount of
weekend drills is taxable. Also, compensation           reportable military compensation on Line 1a of his
earned by a PA resident for military service on ac-     or her Form PA-40 by the sum of the compensa-
tive duty in Pennsylvania is subject to personal        tion received as combat zone pay and/or active
income tax. Under Act 182 of 2006, PA residents         duty pay received as a member of the U.S. armed
called to active military duty for disaster relief of   forces outside the commonwealth. If authority for
emergency management assistance inside or out-          active duty is based upon a PA statute, such as 51
side of Pennsylvania are exempt from taxation on        P.S. §§ 508 or 3102, state active duty will be pre-
the compensation paid to them by either the U.S.        sumed and the income received is taxable.
government or the commonwealth. The taxpayer            Nonresident Members of the Armed Forces
has the burden of establishing that income re-          Nonresident military personnel who are serving
ceived for military service outside the                 on federal active duty in Pennsylvania in compli-
commonwealth was earned while on federal active         ance with military or naval orders are exempt
duty. The Department of Revenue will accept as          from PA personal income tax on their military pay
proof the authority section of the military orders      and housing allowances because of federal law.
directing the taxpayer to federal active duty out-      They and their family members are, however,
side the commonwealth. If authority for the active      subject to tax on any other PA-source income
duty is based upon a federal statute, such as 32        normally taxable to nonresidents. This includes
U.S.C. §§ 316, 502, 503, 504 or 505, federal ac-
                                                        non-active duty pay such as weekend drills.
tive duty will be presumed and the income is
excludable from taxable compensation. To exclude        National Guardsmen and U.S. Reservists
income from serving on active duty in the military      National Guardsmen and U.S. Reservists ordered
outside of the commonwealth, residents must file        to active duty for training at a two-week summer
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                         www.revenue.pa.gov

encampment pursuant to Title 10 or Title 73 of         NOTE: A PA resident in the U.S. foreign service
the U.S. Code are presumed to be on federal ac-        is not on active duty for PA purposes, and his or
tive duty. Military pay received for such service is   her compensation is subject to tax.
excludable from taxable compensation provided
                                                       Members of the Merchant Marines,
the active duty training is performed outside the
                                                       Employees of the U.S. Public Health Service
commonwealth. In addition, scholarships or re-
                                                       and National Oceanic and Atmospheric
muneration received by cadets and midshipmen
                                                       Administration
at U.S. military academies is not taxable because
                                                       PA residents serving in the Merchant Marines, the
none of these academies are within Pennsylvania
                                                       U.S. Public Health Service, the National Oceanic
and such individuals are on federal active duty.
                                                       and Atmospheric Administration or contractors
When a civilian employer either makes up the           working in foreign countries, are subject to tax
difference in a National Guard member's or             on compensation whether earned within or out-
U.S. Reservist's regular wages or continues full       side PA unless the U.S. President declares them
pay for the Guardsman or Reservist during the          by Executive Order to be military service during
term of active duty, the differential or full pay      times of war or national emergency. Also in-
continuation is considered taxable compensa-           cluded in this category are those individuals who
tion. The Heroes Earnings Assistance and Relief        are employed by the Department of Defense as
Tax Act (HEART) of 2008 is an exception to             school teachers. They are not covered under the
this. If the differential pay is earned while in a     Soldiers’ and Sailors’ Civil Relief Act as they are
combat zone or hazardous duty zone, the in-            civilian employees of the Department of Defense
come is not taxable.                                   and not members of the armed forces.

A full-time member of the PA National Guard is         Military Spouses Residency Relief Act
taxed on all of the following components of mili-      The Military Spouses Residency Relief Act
tary compensation:                                     (MSRRA) affects the treatment of residency and
                                                       income for spouses of military personnel for state
  • Inactive state duty pay received for services
                                                       and local tax purposes for tax year 2009 and
    both within and outside the commonwealth;
                                                       after.
  • Inactive federal duty pay received for serv-
                                                       The MSRRA permits a service member’s nonmili-
    ices as a member of the U.S. armed forces
                                                       tary spouse to retain status as an out-of-state
    both within and outside the commonwealth;
                                                       resident and source any nonmilitary compensa-
  • Active federal duty pay received for services      tion to the state of residence under the following
    within the commonwealth, unless called to          circumstances:
    active military duty for disaster relief of
                                                         • The service member must be in Pennsylva-
    emergency management assistance; and
                                                           nia in compliance with military orders.
  • Active state duty pay received for services
                                                         • The service member’s spouse must be in
    both within and outside the commonwealth,
                                                           Pennsylvania solely to be with his/her
    unless called to active military duty for dis-
                                                           spouse.
    aster relief of emergency management
    assistance.                                          • The service member’s spouse must have
                                                           the same domicile (legal residence) as the
Nonmilitary Persons on Federal
                                                           service member.
Active Service
A PA resident on federal active duty outside           Conversely, if a Pennsylvania resident service
Pennsylvania is subject to tax on his or her com-      member is serving outside Pennsylvania and
pensation.                                             his/her nonmilitary spouse earns income in that
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                     www.revenue.pa.gov

other state – and the spouse claims relief under       • From intangible personal property employed
the MSRRA – the spouse’s income is only taxable          in a trade, profession, occupation or busi-
to Pennsylvania.                                         ness carried on in Pennsylvania.
I. Domicile/Legal Residence                          A qualifying nonmilitary spouse must have
A person generally does not acquire a new domi-      moved to Pennsylvania from another state, be in
cile or legal residence by entering the armed        Pennsylvania solely to accompany his/her active
forces. Until a service member intentionally         duty service member spouse stationed in Penn-
changes his/her domicile, a service member’s         sylvania in accordance with military orders and
domicile is the state he/she called home when        have the same state of residency as the service
he/she entered the military. This is the state       member.
where the service member files income tax re-
turns (if that state has an income tax) and where    Taxpayers claiming relief under MSRRA and a re-
the service member intends to return upon leav-      fund of Pennsylvania income tax withheld must
ing the military.                                    provide the following, in addition to a standard
                                                     personal income tax return and appropriate
Under MSRRA, a service member’s spouse nei-          schedules:
ther loses nor acquires domicile or residency by
being absent or present in any U.S. tax jurisdic-      • A copy of the service member’s current mili-
tion solely to be with a service member                  tary orders showing the order to serve in
complying with military orders.                          Pennsylvania;

II. Nonmilitary Spouses and Pennsylvania               • A copy of the service member’s military
Income Taxation                                          identification card;
For tax years beginning on or after Jan. 1, 2009,      • A copy of the nonmilitary spouse’s driver’s
compensation or other income earned in Penn-             license from the resident state;
sylvania for services rendered by a service
member’s nonmilitary spouse is not taxable by          • A copy of the nonmilitary spouse’s W-2, is-
Pennsylvania, when:                                      sued by the employer;

  • The nonmilitary spouse and service member          • A copy of the nonmilitary spouse’s tax re-
    have the same out-of-state domicile;                 turn filed for the resident state;

  • The spouse is in Pennsylvania solely to be         • A copy of the nonmilitary spouse’s military
    with the service member (see note below);            ID card, identifying the card-holder as the
    and                                                  spouse; and

  • The service member is in Pennsylvania com-         • A copy of the service member’s federal
    plying with military orders.                         Department of Defense Form 2058, State of
                                                         Legal Residence Certificate (see note below).
However, a nonmilitary spouse’s other income
from Pennsylvania sources is subject to Pennsyl-     Taxpayers filing electronically should fax these
vania personal income tax to the extent it is        documents within two to three days of e-filing to
earned, received or acquired from sources within     717-772-4193, noting the taxpayer’s name and
the commonwealth as follows:                         Social Security number on each document. Those
  • By reason of ownership or disposition of an      filing paper returns should write “MSRRA” across
    interest in real or tangible personal property   the top of Page 1 of the PA-40.
    in Pennsylvania;                                 Spouses of service members who meet these re-
  • In connection with a trade or business in        quirements and who either had Pennsylvania
    Pennsylvania; and/or                             income tax withheld from wages or made other
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                         www.revenue.pa.gov

Pennsylvania income tax payments for the tax         in a combat zone for purposes of this exclusion.
year may receive refunds of such taxes paid by       The $500 combat zone pay exclusion limit for
filing a Pennsylvania personal income tax return,    military officers contained in the Internal Rev-
PA-40. The nonmilitary spouse should report zero     enue Code is not in the state taxing statute.
wages on Line 1 of his/her Pennsylvania personal     Refer to www.irs.gov for a listing of current
income tax return, and include the total Pennsyl-    combat zones.
vania taxes withheld (Box 17 of Form W-2) on
                                                     PA residents serving in combat zones or qualified
Line 14.
                                                     hazardous duty areas designated by the U.S.
NOTE: A nonmilitary spouse working in Pennsyl-       President are given the same additional time to
vania but living in a neighboring state whose        file their PA personal income tax returns and
spouse is stationed in the neighboring state, may    make payments as allowed for federal income
also be eligible if the service person is required   tax purposes. The deadline is automatically ex-
to be there per military orders and all other re-    tended to 180 days from the last day of service
quirements are met for state of domicile and         or the last day of continuous hospitalization for
reason for being in the location with the military   injuries incurred in one of these areas. Print
service person.                                      “Combat Zone” at the top of the return and mail
                                                     it along with the military orders to:
III. Discontinuation of Pennsylvania Income
Tax Withholding                                           REGARDING COMBAT ZONE
The nonmilitary spouse of a service member                PA DEPARTMENT OF REVENUE
whose wages/salary is exempt from Pennsylvania            BUREAU OF INDIVIDUAL TAXES
personal income tax under MSRRA should file a             PO BOX 280600
Pennsylvania Form REV-419, Employee’s Non-                HARRISBURG PA 17128-0600
withholding Application Certificate, with his/her
Pennsylvania employer, claiming exemption from
Pennsylvania income tax withholding.                 If the return is filed electronically, a copy of the
                                                     military orders must still be submitted. Print
IV. Taxation of Service Members’ Military            “Combat Zone” at the top of the orders and fax
and Nonmilitary Pay                                  them to 717-772-4193 or mail them to:
MSRRA does not exempt from Pennsylvania per-
sonal income tax nonmilitary income earned by a           REGARDING COMBAT ZONE
service member. However, a nonresident service            PA DEPARTMENT OF REVENUE
member's active duty military income continues            ELECTRONIC FILING SECTION
to be exempt from Pennsylvania personal income            PO BOX 280507
tax.                                                      HARRISBURG PA 17128-0507

Combat Zones                                         Retirement Income
Combat zone pay received by a U.S. service           Retired or retainer pay of a member or former
member is not taxable for PA personal income         member of a uniform service calculated under
tax purposes (see Title 72 P.S. § 7301(d)(vii)),     Chapter 71 of Title 10, U.S. Code (as amended) is
nor is it considered poverty income for purposes     not taxable for PA personal income tax purposes.
of the special tax forgiveness provisions (see
                                                     Taxable Income Classes
Title 72 P.S. § 7301 (o.2)(vii)).
                                                     PA personal income tax is levied at a flat rate on
For PA personal income tax purposes, combat          eight separate classes of income:
zones are areas designated by the U.S. President.
                                                       • Compensation
PA National Guard members and U.S. Reservists
are U.S. service members while they are serving        • Interest
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                          www.revenue.pa.gov

  • Dividends and Capital Gains Distributions           tenants in common). However, for any other
                                                        property, such as bank accounts, each individual
  • Net Income or Loss from the Operation of a
                                                        person is considered an equal owner. In the case
    Business, Profession or Farm
                                                        of ownership by a taxpayer and spouse and a
  • Net Gains or Loss from Sale, Exchange or            child appearing as owners on a bank account,
    Disposition of Property                             each would be liable for one-third of the
                                                        interest earned.
  • Net Income or Loss from Rents, Royalties,
    Patents or Copyrights                               INSTRUCTIONS FOR PREPARING
                                                        FORM PA-40
  • Estate or Trust Income
                                                        If filling out a paper Form PA-40, be sure to fill in
  • Gambling and Lottery Winnings                       all requested information by typing or printing
Gains and Losses                                        legibly.
A gain in one class of taxable income cannot be         Only taxpayers who request a PA-40 book will
offset against a loss in any other class of taxable     have a book mailed to them.
income, nor may gains or losses be carried back
or forward to another tax year. If a taxpayer has       The Department of Revenue uses electronic data
a net loss in any income class, enter the amount        imaging to enter tax returns into its computer
of the loss on the appropriate line on Form PA-         system. Follow these instructions for entering So-
40; use the actual dollar figure and fill in the oval   cial Security numbers, names, addresses and
indicating loss for that category. A completed          amounts to help ensure personal income tax re-
schedule must be submitted even if the taxpayer         turns are processed accurately and quickly.
incurred a loss in a class of income. A spouse
                                                          • Print in black ink.
may only offset losses against his or her own
profit/gain/income. A spouse may not offset a             • Use UPPER CASE (CAPITAL) letters.
loss against the other spouse's profit or gain.
However, if spouse A and spouse B jointly own a           • Print one number or letter in each box.
business which incurred a loss, they may each             • Leave a blank box between whole words.
take their share of the loss against their other
business gains.                                           • Print the taxpayer’s name – last, first, mid-
                                                            dle initial and suffix on the correct lines.
Joint Income
If two or more persons, such as a taxpayer and            • Print the taxpayer’s correct address.
spouse, own income-producing property -- in-              • Print the taxpayer’s apartment number, suite
cluding real estate, savings accounts or stock --           number, room number, rural route, floor, etc
as joint tenants, tenants by the entirety or ten-           on the first line.
ants in common, each person must report his/her
proportional share of income from the property,           • Print the taxpayer’s PO Box on the second
even if only one Social Security number and                 line.
name appears on the statement. Generally, such            • Fill in all appropriate ovals completely.
income is divided equally between the owners.
                                                          • Show money amounts in whole dollars.
In the case where a taxpayer and spouse and a               Eliminate any amount less than $0.50 and
third party own real estate, such as parents and            increase any amount between $0.50 and
a son or daughter, the taxpayer and spouse are              $0.99 to the next highest dollar.
jointly liable for one-half of any gain on the sale,
and the child is liable for the other half (unless        • Prepare a copy for the taxpayer’s records
the deed stipulates that the property is held as            before submitting.
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PERSONAL INDIVIDUAL TAX PREPARATION GUIDE                                         www.revenue.pa.gov

If the name, address or city begins with Mc, Van,     joint return with a deceased taxpayer, the surviv-
O’, etc, do not enter a space or a punctuation        ing spouse enters his/her name first. If both
mark.                                                 taxpayer and spouse are deceased and filing a
                                                      joint return, enter the name of the primary tax-
There are two lines to enter the address. Use the
                                                      payer from the previous tax year first.
postal format of apartment number, suite, room
number, rural route, box number, floor, etc. on       Address
the first line and the street address on the sec-     The address must be the current mailing address
ond line. If there is only a street address, it may   of the taxpayer. If using a military address, the
be entered on either line.                            APO or FPO address should be used.

There are ovals present for “Extension”,              If filing for a taxpayer who is using an address
“Amended Return”, “Residency Status”, “Filing         that is out of the country, the format established
Status”, “Farmers” and losses in certain income       by the U.S. Postal Service must be followed. The
categories. If any of these apply, the oval(s)        proper format is to enter the name(s) in the
must be filled in completely. Do not use an X or a    spaces provided. The house number and street,
check mark. Also note that Form PA-40 is two-         apartment number and street or postal delivery
sided. Do not forget to complete both sides.          location is to be entered in the spaces for the
                                                      first line of the address. The city, state/province
Social Security Number
                                                      and foreign postal code (the equivalent of ZIP
The taxpayer's correct Social Security number
                                                      code) should be entered on the second line of
(SSN) must be verified and matched against the
                                                      the address. The name of the country should be
state copy of the Wage and Tax Statement, the
                                                      entered in the spaces provided for City or Post
W-2 Form. If a W-2 Form has an incorrect SSN,
                                                      Office on the Form PA-40. Do not enter any infor-
the taxpayer must obtain a corrected W-2 Form
                                                      mation in the state or ZIP Code spaces.
(Form W-2C) from his or her employer.
                                                      Daytime Telephone Number
Returns completed for married taxpayers, even if
                                                      Provide a telephone number where the taxpayer
filing Married, Filing Separately, must include the
                                                      can be reached during the day.
SSN of both spouses.
                                                      School Code and School District Name
NOTE: By law (42 U.S.C. Sec. 405(c)(2)(C)(i);
                                                      The five-digit code and name of the school dis-
61 Pa. Code Sec. 117.16) the PA Department of
                                                      trict where the taxpayer lived on Dec. 31 of the
Revenue has the authority to use the SSN to ad-
                                                      tax year must be entered. If the taxpayer was a
minister PA tax laws to identify taxpayers and
                                                      nonresident of Pennsylvania on the last day of
their incomes. PA law does prohibit the common-
                                                      the tax year, enter 99999 in the school code
wealth from disclosing information individuals
                                                      area. If the taxpayer died during the tax year,
provide on income tax returns, including SSNs,
                                                      enter the information applicable at the time of
except for official purposes.
                                                      death. This information must be entered. Using
Name                                                  an incorrect school code may affect the school
The complete name of the taxpayer must be en-         district’s funding. Failure to enter this information
tered. In completing a joint return, the spouse's     may delay the processing of the return and delay
first name must also be included. If a taxpayer       the issuance of any refund.
and spouse use different last names, the person
                                                      Some examples of what to consider when enter-
entering his or her name as the spouse must
                                                      ing the school code on a return are as follows:
enter the last name he or she is using in the
blocks designated as “Spouse’s Last Name”. Do           • Any military personnel should use the
not enter anything in these blocks if the taxpayer        school code for the domicile of his/her
and spouse use the same last name. If filing a            spouse (if the spouse lives in Pennsylvania),
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