State-by-State Guide to Taxes on Retirees - Pennsylvania
Tool | November 2019

State-by-State Guide to Taxes on Retirees

Pennsylvania

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The Bottom Line
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Not Tax Friendly

The Keystone State is one of the most generous states in the nation when it comes to offering income tax exclusions on a wide variety of retirement income. Pennsylvania does not tax Social Security benefits or any eligible Pennsylvania public or private pension plan. Plus, the municipal income taxes that hit working folks hard aren’t levied on retirement income. But high property taxes keep Pennsylvania from being a retirement haven.

State Sales Tax

6% state levy. Philadelphia has a local sales tax of an additional 2%, and Allegheny County (Pittsburgh’s home county) adds a local sales tax of 1%, bringing the population-weighted average to 6.34%, as measured by the Tax Foundation.

Income Tax Range

Pennsylvania has a flat rate of 3.07%. However, municipalities tax earned income, too. According to the Tax Foundation, the average levy is 2.95%.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Income from private employer, government, and military retirement plans paid after the taxpayer become eligible to retire is exempt.

Railroad Retirement benefits are also exempt.

Property Taxes

In Pennsylvania, residents pay an average of $1,674 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: Homeowners and renters 65 or older and widows or widowers 50 or older who live on limited incomes are eligible for rebates of paid property tax or rent. A maximum standard rebate of $650 (supplemental rebates can boost the amount to $975 for homeowners with particularly high tax burdens) is available through this Property Tax/Rent Rebate Program. To qualify, annual household income must not exceed $35,000 ($15,000 for renters). Fifty percent of Social Security payments and 50% of Railroad Retirement benefit payments are excluded from eligibility income.

Vehicle Taxes

Sales tax is due on purchases.

Inheritance and Estate Taxes

The Pennsylvania inheritance tax is calculated as a percentage of the value of the estate transferred to beneficiaries. The amount is determined based on 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.

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