Pennsylvania Tax Rates

This post provides an overview of the primary taxes levied at the state level in Pennsylvania. The state’s tax structure is characterized by a unique flat individual income tax but one of the highest corporate income tax rates (though it is being phased down) and a reliance on complex local income and property taxes. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Pennsylvania utilizes a flat rate individual income tax system, making it one of the simplest income tax systems at the state level.

  • State Rate: The state income tax rate is a flat 3.07% of taxable net income for all residents, regardless of income level.
  • Tax Base: The tax applies to eight distinct classes of income, including compensation, interest, dividends, and net profits from a business.
  • No Standard Deduction/Exemption: Unlike the federal system, Pennsylvania does not allow a standard deduction or personal exemptions.
  • Retirement Income: Income from Social Security benefits, most pensions, and payments from 401(k)s/IRAs for individuals aged 60 or older are generally fully exempt from the state income tax.
  • Local Income Taxes: A highly complex and decentralized system of local taxes exists. Many municipalities and school districts impose a Local Earned Income Tax (EIT), which is levied on wages and net profits.
    • EIT rates vary, often ranging from 0.5% up to 3.75% in Philadelphia (City Wage Tax) and 3.00% in Allentown, significantly increasing the total tax burden for workers.

Sales and Use Tax

Sales tax is a key revenue source, combining a state base rate with a limited number of local additions.

  • State Rate: The general state sales tax rate is 6.00% on the retail sale of most tangible personal property and certain services.
  • Local Taxes (The Exceptions): Only two counties impose a local sales tax:
    • Allegheny County (Pittsburgh area) adds 1.00%, bringing the combined rate to 7.00%.
    • Philadelphia County adds 2.00%, bringing the combined rate to 8.00%.
    • The statewide average combined rate is only about 6.34% because the vast majority of the state has no local sales tax.
  • Exemptions: Pennsylvania’s sales tax base is narrow. Key exemptions include groceries (unprepared food for home consumption), prescription drugs, and most clothing and footwear.
  • Use Tax: A state use tax of 6.00% plus the applicable local rate is owed on taxable goods purchased outside of Pennsylvania but used, stored, or consumed in the state if state sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in Pennsylvania are collected exclusively at the local level by counties, municipalities, and school districts, and they are generally above the national average effective rate.

  • Assessment: Property is assessed at a value determined by the county, which may be 100% of market value or a fraction of market value, depending on the county’s assessment system.
  • Tax Calculation: The tax is determined by applying the local mill rate (millage rate, with one mill equaling $1 per $1,000 of assessed value) to the assessed value.
  • High Burden: Property taxes, especially those levied by school districts, are a significant burden in many areas.
  • Property Tax/Rent Rebate: The state offers a Property Tax/Rent Rebate Program funded by the Pennsylvania Lottery that provides tax relief to eligible senior citizens, widows/widowers, and disabled persons, subject to income limits.

Corporate Net Income Tax (CNI)

Pennsylvania imposes a corporate net income tax that has historically been one of the highest in the nation but is currently being phased down.

  • Tax Rate (2025): The CNI rate is scheduled to be 7.99% for the 2025 tax year (reduced from 8.49% in 2024 and 8.99% in 2023).
  • Phase-Down Schedule: The rate is legislated to continue a 0.5% annual reduction until it reaches 4.99% for tax years beginning in 2031 and thereafter.
  • Apportionment: For multi-state corporations, Pennsylvania uses a single sales factor apportionment method to determine the amount of income taxable in the state, based solely on the proportion of sales made in Pennsylvania.
  • Capital Stock/Foreign Franchise Tax: This tax, formerly imposed on corporate net worth, was completely eliminated for tax years beginning after December 31, 2015.

Unique and Miscellaneous Taxes

  • Inheritance Tax: Pennsylvania is one of the few states that imposes a state inheritance tax on assets transferred to beneficiaries upon death. The rate depends on the relationship to the decedent:
    • 0% for transfers to a surviving spouse or minor child.
    • 4.5% for transfers to direct descendants (children, grandchildren, etc.).
    • 12% for transfers to siblings.
    • 15% for transfers to all other heirs (except charitable organizations).
  • No Estate Tax: The state does not impose a state-level estate tax.
  • Motor Fuel Tax: Pennsylvania has one of the highest motor fuel taxes in the U.S., set at approximately 58.7 cents per gallon for gasoline.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.