Did you know 9 states do not require residents to pay a personal income tax? Folks that live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, are exempt from this bill. Furthermore, 7 other states simply enforce a flat tax rate. So what's the moral to the story? People who live in these states are able to buy more stuff because they pay less tax.
But for the rest of us, residential income tax is a necessary evil, one that takes a serious bite out of our disposable income. And while the forms are designed to collect the same data, they're all constructed differently. What follows is a breakdown of Form PA-40, the Pennsylvania Individual Income Tax Return. If you don't live in Pennsylvania, not to worry, we'll be tackling the other 34 states soon enough.
So the Steelers are in the Super Bowl and the Phillies have the best pitching rotation on the planet. Life is good in Pennsylvania right? Well yes and no. While all the major sport teams are kicking or will soon be kicking tail, it's also tax time. And that means it's time to deal with the PA-40.
At 2 pages and a mere 35 lines, the PA-40 isn't a long or hard form. Figuring out your net compensation on Line 1 is a bit unusual, having a line dedicated gambling and lottery winnings is lousy, but overall this is decently built form.
The biggest problem with filing taxes in Pennsylvania is the 8 week turnaround time on refunds. But you better believe that if you owe and have to mail a check in, the state will cash that thing quicker than a hiccup. Still, the form is easy enough and deserves a solid 7 of 10 on our user-friendly meter. I'd have no problem bumping up this rating, if it offered a space for direct deposit, or allowed residents to e-file.
Begin by filling in your name, address, phone and Social Security numbers at the top of the form. When set, you can move on to the box on the right that contains, your residency and filing status. Okay?
Enter your gross compensation on Line 1a. In Pennsylvania terms, gross comp doesn't include exempt pay, like from the military or qualified retirement benefits. If you incurred business expenses (and weren't paid for them), enter the amounts on Line 1b. Now subtract Line 1b from 1a to get your net compensation, which goes on Line 1c.
If you've earned interest income, enter it on Line 2; just be sure to attach a PA Schedule A if necessary. The next few lines have to do with sorts of income, be it dividend and capital gains, a net gain or loss from a sale of property or business, and even gambling and lottery winnings. When you're set, add Lines 1c through 8 on Line 9 to yield your total Pennsylvania taxable income.
If you have “other deductions” coming to you, enter the code for the deduction type in the box and the amount on Line 10. Now you can subtract Line 10 from Line 9 on Line 11 to get your adjusted PA taxable income.
Pennsylvania is one of those flat tax states, so multiply Line 11 by a very fair 3.07% on Line 12. Enter your PA withholdings on Line 13 and any credits from last year's tax return on Line 14. If you made estimated tax or extension payments, enter those figures on Lines 15 and 16. If you're a nonresident, you'll have to work through Line 17. Now add lines 14 through 17 on Line 18 to get your total estimated payments and credits.
To see if you qualify for the tax forgiveness credit you will need to work through the PA Schedule SP and Lines 19a through 21. Line 22 provides for a resident credit, but be sure to include a PA Schedule G-R if it applies. All other credits get recorded on Line 23. Add up Lines 13, 18, and 21 through 23 to get your total payments and credits, which go on Line 24. One line 25 declare any use tax you may have.
If the sum of Line 12 and Line 25 is more than Line 24, enter the difference on Line 26, this equals tax you still owe. If you've been slapped with any penalties or interest, enter it on Line 27. Now you can add Lines 26 and 27, to get your total payment, which goes on Line 28.
If Line 24 is more than the total of Lines 12, 25, and 27 enter the difference on Line 29. This works out to be your overpayment. Enter the amount of Line 29 you want refunded to you on Line 30 and the amount you want applied to next year on Line 31. If you want to donate to a plethora of good causes feel free to do so on Lines 32 through 36.
All that's left is for you to sign and date the signature section at the bottom of the form. If you had a tax pro help you, they will do the same. The form clearly states that you should not call about your refund until 8 weeks after you file.
And really that's a horrible turnaround time. Perhaps Pennsylvania should cut taxpayers a break and offer a free e-file service. Oh well, at least residents have the Steelers and Phillies.