PA Questions

[Patrick Michael]

Client moved to PA last year (MFJ, no dependents) and had local tax withheld with a locality code 400907.  Does a local tax return have to be filed?  Drake did not produce any local tax returns.  

I noticed that on two of the W-2's the state wage amount (box 16) was lower than the federal wage amount (box1), and one the state wages was higher than the federal wages.  Any ideas why these amounts are different?

The rest of the return seems pretty straight forward.  Any other quirks with PA that I should look out for?

 

[Medlin Software, Dennis]

PA taxes retirement contributions (no deferral) so a full PA year with day a 401k will show PA taxable wages higher than federal. 

[jklcpa]

1 hour ago, Patrick Michael said:

Client moved to PA last year (MFJ, no dependents) and had local tax withheld with a locality code 400907.  Does a local tax return have to be filed?  Drake did not produce any local tax returns.  

I noticed that on two of the W-2's the state wage amount (box 16) was lower than the federal wage amount (box1), and one the state wages was higher than the federal wages.  Any ideas why these amounts are different?

The rest of the return seems pretty straight forward.  Any other quirks with PA that I should look out for?

 

Within Drake, go to the state tab and open the PA area. From there, you'll be able to generate the W2WK schedule to explain any differences from the W-2 wages to the PA return. That schedule reconciles the Fed and Medicare wages to the PA wages. For a PY or NR, you may need to make a manual entry for wages earned (calc'd on the basis of what PA taxes) during the period of nonresidence.  PA does not allow a deduction for retirement plan deferrals such as 401K contributions so those are an add-back on the worksheet, but it does not tax GTLI reported on W-2 box 12 as code C so that would be a subtraction.  You'll notice on the W2WK worksheet that those 2 items already have predefined boxes in the appropriate columns for proper reconciliation.  With some PY PA returns, I found that having the paystubs for year-end and the one immediately prior to moving in or out of the state to be extremely helpful.  There have been times where I attached my own reconciling schedule as a pdf.

If client has Sch D that is a net loss, that amount will show up on Sch D and will carry to the PA-40, pg 1, but it will not be included in the math total to arrive at taxable income because PA taxes income and doesn't allow losses. 

Cap gain dividends do NOT flow to PA Sch D but are included in the dividend line on the PA return.

PA doesn't have itemized deductions, but some employment-related deductions are still allowed for employees that receive a W-2 and have unreimbursed job-related expenses.  If your client is in a profession that may have those, such as salesperson, you may want to check out Sch UE, and those flow to PA-40 pg 1 and are shown as a reduction of the PA wages.

PA allows a deduction for 529 plan contributions made by the taxpayer.  Schedule O.  Off the top of my head, I'm not sure exactly how this is handled for PY returns though, so if you have this, you'll have to check the instructions on that one.

PA return, you'll need to enter the school district that the client lives in and the dates of residence. That's on the PA tab.

For the local return, Drake has a separate tab for that.  You'll have to look up the municipality and its rate.  PA does allow a credit for income taxed in two states, if you have that situation, and the local return will allow that also, and that is calculated similar to the state credit but is further reduced by the amount that was already used on the PA state return. 

Also for the local, you'll need to get the instructions from the locality or collection bureau that they live in. Each municipality has their own rate, and you'll have to read the instructions to find out how it allows for withholding if the taxpayer works in a different municipality than where they live.

I'll wish you good luck with the input.  I find the PY returns particularly fiddly and feel like I always waste some time getting it to present properly even when I'm certain of what the outcome should be. 

[Patrick Michael]

WOW.  Thanks for all info.  I will take a look at the worksheets.

Thanks so much!

[BulldogTom]

24 minutes ago, Patrick Michael said:

WOW.  Thanks for all info.  I will take a look at the worksheets.

Thanks so much!

@Patrick Michael  You just got a PA master class for free.   Lucky you.   @jklcpa You are the bomb!

Tom
Longview, TX

[jklcpa]

Aww, thank you!   ::blushes::

[Sara EA]

PA preparers correct me if I'm wrong, but in my experience local and school taxes for W2 employees are withheld for the exact right amount.  If you paid too much I believe you have to give an explanation.  The only times I've had to file PA local and school returns is for Sch C clients who don't have withholdings.

[jklcpa]

3 hours ago, Sara EA said:

PA preparers correct me if I'm wrong, but in my experience local and school taxes for W2 employees are withheld for the exact right amount.  If you paid too much I believe you have to give an explanation.  The only times I've had to file PA local and school return for Sch C clients who don't have withholdings.

It is possible that the tax withheld will be for the exact amount of tax liability if the taxpayer works in the same jurisdiction that he/she works in or works outside of the resident jurisdiction and the employment jurisdiction has the same tax rate as where he resides, but that isn't always the case. It is also possible that the resident works in a jurisdiction that has a higher rate than where he resides, but he will not be able to claim the full credit but only up to the rate where he lives.

All PA residents with earned income must file a local earned income tax return if their local resident jurisdiction imposes such a tax. Documentation must be attached (W-2s, Sch C, 1099, PA-40 and out of state returns for credits claimed, etc).

Since I am right on the DE/PA border, many of my PA residents work in DE and have to rely on the out-of-state credit to cover the PA state and local liabilities or pay quarterly estimates. Either way, they are filing local returns.

[schirallicpa]

12 hours ago, Sara EA said:

PA preparers correct me if I'm wrong, but in my experience local and school taxes for W2 employees are withheld for the exact right amount.  If you paid too much I believe you have to give an explanation.  The only times I've had to file PA local and school returns is for Sch C clients who don't have withholdings.

Ahhhh - I believed this to be true a few years ago.  But then I had clients getting $25 fees for not filing - even thought it was a wash return.  I feel like the locals are getting more organized and finding more ways to generate fees.