Pennsylvania Tax and CPA Services: State, County and City Taxes

Pennsylvania looks simple at the state level, with one flat personal income tax rate. The complexity comes from the layers on top: a local earned income tax in most communities, a per-person Local Services Tax, and a separate tax system in Philadelphia. This page covers tax year 2025 returns (filed in 2026) and 2026 planning for people and businesses with a Pennsylvania connection.

A flat tax with eight classes of income

The Department of Revenue taxes eight classes of income at 3.07%: compensation, interest, dividends, business net profits, gains from selling property, rents and royalties, estate and trust income, and gambling and lottery winnings. A loss in one class cannot offset income in another class, and losses cannot be carried back or forward. For example, a loss from a side business does not reduce your Pennsylvania-taxable wages, even though your federal return may net them.

There is no standard deduction or personal exemption. Allowed deductions include unreimbursed employee business expenses and contributions to health savings accounts, medical savings accounts and 529 plans. Pennsylvania residents get a credit for income tax paid to other states, and gain on a principal residence is excluded if ownership and use tests are met. Social Security and railroad retirement benefits are not taxed, and neither are distributions from eligible Pennsylvania retirement plans after retirement age.

Local earned income tax and the Local Services Tax

Under Act 32, employers with Pennsylvania worksites must withhold local earned income tax (EIT) and the Local Services Tax (LST). The Department of Community and Economic Development counts the homes of home-based employees as worksites. For each employee, the employer compares the home community's resident rate with the work location's nonresident rate and withholds the higher one. The state's address lookup gives each rate and its PSD code.

In 2026, the LST is a flat per-person amount, capped at $52 in a calendar year however many places you work. Where an LST exceeds $10, people earning under $12,000 in that community are exempt.

Out-of-state employers are not required to withhold local EIT for Pennsylvania residents, but the employee still owes the home rate and may need quarterly estimates. Our local payroll taxes guide and multi-state payroll guide cover the employer side.

Philadelphia taxes

Philadelphia runs its own system, and the Philadelphia metro page explains how we serve the area.

• Wage Tax: residents owe it wherever they work, and nonresidents owe it on work performed for a Philadelphia employer. A nonresident whose employer withholds for days worked outside the city can request a refund.
• Net Profits Tax: for tax year 2025, 3.74% for residents and 3.43% for nonresidents.
• Business Income and Receipts Tax (BIRT): for tax year 2025, 1.410 mills on gross receipts plus 5.71% on taxable net income, due April 15, 2026. The city says the former $100,000 BIRT exemption no longer applies.
• Sales tax (2026): Pennsylvania's rate is 6%, with 1% more in Allegheny County and 2% more in Philadelphia.

Working across the border

A resident of Indiana, Maryland, New Jersey, Ohio, Virginia or West Virginia who works in Pennsylvania generally owes no Pennsylvania income tax on compensation subject to employer withholding. If Pennsylvania tax was withheld, file the PA-40 reporting zero taxable compensation to claim a refund. The agreements cover employee compensation only, with an exception for 20% shareholder-employees of Ohio S corporations. Pennsylvania residents who work in those states file for refunds there. See our pages for New Jersey and Ohio, and ask us about local taxes, which follow separate rules.

Corporate rates, pass-throughs and annual reports

The corporate net income tax rate is 7.99% for 2025 and 7.49% for 2026, then falls by half a point each year to 4.99% for 2031 and later. S corporations pay corporate tax only on built-in gains, and owners pay 3.07% personally. Partnerships and S corporations withhold for nonresident owners. The Department's pass-through pages describe owner-level tax, not an elective entity-level tax, so confirm the current rule before planning a SALT-cap workaround.

Most Pennsylvania entities and registered foreign entities must file a Department of State annual report, starting in 2025, for a $7 fee (2026). Corporations file by June 30, LLCs by September 30 and other entities by December 31. Dissolution for missed reports begins with reports due in 2027. See business formation.

Payroll basics

Employers withhold the 3.07% rate from residents wherever they work and from nonresidents working in Pennsylvania. Deposits run quarterly, monthly, semi-monthly or semi-weekly depending on quarterly withholding. For unemployment compensation, the 2026 taxable wage base is $10,000 per employee, employees contribute 0.07% of gross wages, and each employer receives a rate notice in December.

How we can help

We prepare PA-40 returns, including nonresident, part-year and reciprocal-state returns, coordinate local EIT and Philadelphia filings, and handle BIRT and Net Profits Tax returns for owners. For employers, we set up payroll services with correct PSD codes and local withholding, and we review multi-state and local tax exposure for remote staff.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.