Income Tax Pennsylvania Income Tax

¶ … Income Tax

Pennsylvania income tax is modeled after the federal income tax system and requires the tax payers to annually report and analyze all income included investments and calculate the total tax liability owed (560). In Pennsylvania there are five tax rates: 15%, 28%, 31%, 36%, and 39.6% (committee note 2). The rate that a tax payer owes depends on their total income with the max percentage rate being applied to those making $200,000 or more. In addition to calculating the total owed, there are permitted credits and deductions available to reduce the amount based on certain expenditures these include investment losses, dependents and even charitable contributions (560).

In addition to the traditional method, Pennsylvania requires that certain tax payers fill out a second tax form referred to as the Alternative Minimum Tax form (committee note 1). This form is meant for tax payers who make large incomes ($200,000 or more) but owe little to no tax liability due to utilizing the applicable credits under the traditional method (2). This method offers some credits, but requires that a certain amount be paid regardless (3).

Both the federal and state governments levey taxes (560). The Internal Revenue Service levies the taxes for the federal government. These tax rules are set by the federal government and effect all United States residents. The state of Pennsylvania also levies additional taxes on its citizens.

Taxes are levied not only for individuals, but also for businesses. Taxes are levied differently for incorporated and non-incorporated businesses. Incorproated businesses are considered an independent entity and is therefor taxed independent of its owners. This is commonly referred to as double taxation meaning the owner of the corporation must pay taxes twice, once on the salary derived from the business and once on the busisiness's total income. Non-incorporated businesses are viewed as being an extension of the individual tax payer, so the payer must only file one form and pay one total amount (571).