PENNSYLVANIA
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NICKNAME
The Keystone State
BOTTOM LINE: TAX-FRIENDLY
Pennsylvania shows its Quaker roots and extends a friendly hand to retirees. It is one of the most generous states in the nation when it comes to offering income-tax exclusion on a wide variety of retirement income. Pennsylvania does not tax Social Security benefits or any type of public or private pensions. Neither does it nick distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts. Property taxes can be steep in some communities, though.
STATE SALES TAX
6%, but food, clothing, textbooks, heating fuels, and prescription and nonprescription drugs are exempt. Other taxing entities may add up to 2%.
INCOME-TAX RANGE
Flat rate of 3.07%.
SOCIAL SECURITY
Benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Retirement income is not taxed after age 59½ if the person has reached retirement, based on years of service or age. Distributions aren’t taxed from eligible retirement accounts, including employer-sponsored deferred-compensation plans, 401(k) plans and IRAs. Income not taxed includes Railroad Retirement benefits, United Mine Workers' pensions, military pensions and civil-service annuities.
PROPERTY TAXES
Property taxes are levied by local governments (counties, municipalities and school districts). The tax cannot exceed 30 mills, or $30 per $1,000, on the assessed value of the property without special permission from the courts.
Tax breaks for seniors: For households with people 65 or older and widows or widowers 50 or older, rebates of paid property tax or rent, with a maximum standard rebate of $650, are available through the Property Tax/Rent Rebate program. To qualify, annual household eligibility income must not exceed $35,000. Seniors can also exclude 50% of Social Security payments and 50% of Railroad Retirement benefit payments from eligibility income.
INHERITANCE AND ESTATE TAXES
The Pennsylvania inheritance tax is calculated as a percentage of the value of the assets transferred, which is determined by the relationship of the heir to the decedent and the decedent's date of death. The tax rate is 4.5% for transfers to direct descendants (lineal heirs), 12% for transfers to siblings and 15% for transfers to other heirs (except charitable organizations, exempt institutions and government entities). Property a husband and wife own jointly is exempt from the tax, and so is property inherited from a spouse or from a child 21 or younger by a parent. If the inheritance tax is paid within three months of the decedent's death, a 5% discount may apply. Pennsylvania has no state estate tax in 2012, but it is scheduled to come back in 2013.
Visit RetirementLiving.com for a complete rundown of taxes in Pennsylvania.
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