Pennsylvania Income Tax Forgiveness program reduces or eliminates the state income tax for people living in poverty. However, it has been more than 20 years since the legislature last updated the eligibility thresholds. A combination of factors, including a divided government and other hot-button legislative priorities, has kept lawmakers from making changes.

Pennsylvania Income Tax Forgiveness Eligibility

To qualify for the PA tax forgiveness credit, taxpayers must file a PA personal income tax return (PA-40) and complete PA Schedule SP. Eligibility income includes Social Security, unemployment or pension payments, child support, and more. It does not include income from nontaxable interest, gifts from parents or other relatives, cash payments from friends and neighbors, and nontaxable contributions to an employer’s cafeteria plan.

Advocates for the poor have pushed for the creation of a state-earned income tax credit, which would go further than the federal credit. The state credit would apply to workers with the lowest incomes, including those who do not qualify for other government assistance programs.

Those who don’t qualify for the credit can still discharge their tax debt in bankruptcy, but this is not an option most low-income taxpayers consider. Instead, they often choose to apply for a deferred payment plan with the Department of Revenue (Pennsylvania). This option requires a financial statement and pays the debt over six months.

How to File Pennsylvania Income Tax Forgiveness?

To file for Pennsylvania Income Tax Forgiveness, you’ll need to complete a specific form alongside your regular tax return. Here’s a step-by-step guide:

Gather Documents:

• You’ll need your regular tax documents to file your PA-40 return.
• Additionally, collect any documents that prove your income and the number of qualifying dependents you claim (e.g., W-2s, Social Security numbers for dependents).

Complete PA-40 Schedule SP:

• Download the PA-40 Schedule SP form from the PA Department of Revenue’s website [PA Department of Revenue Forms and Publications].
• This form helps determine your eligibility and the amount of tax forgiveness you qualify for.
• It involves calculating your Pennsylvania taxable income, filing status, qualifying dependents, and eligibility income (including non-taxable income).

File Your Return:

You have two options for filing:

• Electronically: Use myPATH, the Department of Revenue’s free online filing system [PA Department of Revenue myPATH]. This allows for easy submission of both your PA-40 form and the completed PA-40 Schedule SP.
• Paper Form: Download the PA-40 form and mail it along with the completed PA-40 Schedule SP to the address provided by the Department of Revenue.