PA Considers Significant Changes to Personal Tax Framework
The Pennsylvania legislature is contemplating significant changes to the Commonwealth’s individual tax structure. House Bill 13, sponsored by Rep. Frank Ryan (R-Lebanon County), calls for the elimination of school property taxes in favor of increased sales and use and personal income tax rates.
House Bill 13, as written, would:
Increase the sales and use tax rate on all currently taxable items by 2%, paid to counties and distributed to local school districts
Create a new sales tax of 2% applied to food and clothing (items excluded from the current sales tax, with exceptions), paid to counties and distributed to local school districts
Increase the personal income tax rate by 1.85%, paid directly to the local school district
Expand the types of income subject to the personal income tax to include retirement income, with limited exceptions
PA currently has a flat 6% sales tax on items subject to the tax. Sales in Allegheny County are subject to an additional 1% local sales tax and sales in Philadelphia are subject to an additional 2% local sales tax. House Bill 13 would increase the highest sales tax rate paid in the Commonwealth to 10%, and would make goods currently excluded from the sales tax (food and clothing staples) subject to the tax, albeit at a lower rate. Critics of sales taxes generally argue these types of taxes are regressive. They disproportionately impact lower-income taxpayers, as those taxpayers spend a larger proportion of their income on goods that are subject to the tax.
PA currently has a flat 3.07% personal income tax. A 1.85% rate increase would bring the total personal income tax to 4.92%, a 60% increase. The bill would also subject Pennsylvanians’ retirement income to the personal income tax, a major shift from the current structure which generally excludes retirement income from the personal income tax.
Broadly speaking, House Bill 13 seeks to shifts the burden of funding public schools from property owners to consumers, wage earners, and retirees. Depending on your individual perspective, these proposed changes may seem more or less fair than the current system for funding the Commonwealth’s public schools. It’s important to note that this bill is currently in the House finance committee. It would need to clear the committee, the full House and Senate, and be signed by the Governor before becoming law. If the bill were to survive that process, it would likely face several revisions before becoming final.
Schreiber Accounting and Advisory can help you understand your current tax situation and how this and other proposed legislation might impact you with comprehensive tax planning and preparation services for small businesses, individuals, and nonprofits. Contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.