PA Inheritance Tax vs PA Income Tax

what is the difference between Pennsylvania Inheritance Tax and Pennsylvania Income Tax?

PA Inheritance Tax vs PA Income Tax

‘Tis the season for taxes and some may wonder what is the difference between Pennsylvania Inheritance Tax and Pennsylvania Income Tax?

Pennsylvania Inheritance Tax

Pennsylvania Inheritance Tax is collected when a decedent’s (someone who passed away) estate is transferred to beneficiaries by will, heirs by intestacy, or transferees by operation of law (for example, joint accounts, payable on death accounts or listed as beneficiary under a retirement account).  The percentage of the inheritance tax to be collected is determined by the value of the asset and the relationship that existed between the decedent and beneficiaries.  The rates for inheritance tax are state specific and the Pennsylvania inheritance tax rates are:

  • 0% on transfers to a surviving spouse or to a parent from a child aged 21 years old or younger;
  • 4.5% on transfers to direct descendants and lineal heirs;
  • 12% on transfers to siblings; and
  • 15% on transfers to other heirs with the exception of charitable organizations, exempt institutions and government entities that are exempt from tax.

Pennsylvania Inheritance Tax is to be paid upon the death of the decedent and must be paid within nine months of the decedent’s date of death or the payment is considered delinquent.  A five percent discount is awarded to individuals who pay the inheritance tax within three months of the decedent’s death.

Exceptions for Pennsylvania inheritance tax include:  property owned jointly by spouses, life insurance, assets in a PA 529 account and certain farm land and other agricultural property owned by decedents who died after June 30, 2012 as long as the property is transferred to eligible persons, etc..



Pennsylvania Income Tax

Currently the Pennsylvania personal income tax paid each year is set at 3.07% of the taxable income of a resident or nonresident, estate, trusts, partnerships, S corporations, business trusts, and limited liability companies that are not taxed federally as corporations.

The classes of income Pennsylvania taxes are:

  • compensation
  • interest
  • dividends
  • net profits from the operation of a business, profession or farm
  • net gains or income from the dispositions of property
  • net gains or income from rents, royalties, patents and copyrights; income collected through estates or trusts
  • gambling and lottery winnings, which includes cash prizes from the Pennsylvania Lottery  

Pennsylvania collects income taxes through estimated and final payments from individuals; employer withholding; and estimated withholding from nonresident partners or shareholders by partnerships and S corporations.

Deductions, credits, and exclusions may apply which allow individuals to reduce the amount owed in taxes such as making contributions to PA 529 accounts or PA ABLE accounts.



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