Is Unemployment Compensation Taxable on Pensylvania Income Taxes?
Unemployment can be a painful and difficult experience in many ways, but the financial ramifications are often the most difficult issue to deal with. Unemployment compensation helps ease the transition for millions of unemployed workers every year, but unemployment benefits are only a fraction of what many unemployed individuals were earning before they became unemployed. And when you subtract the federal and (in most cases) state income taxes due, these unemployment benefits do not go far.
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IRS Defines Unemployment Compensation as Taxable Income
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The IRS defines federal or state unemployment compensation as taxable income and instructs that it should be included as gross income on your tax return. However, if you are receiving unemployment compensation from a union- or company-financed unemployment fund, any amounts above what you contributed to the fund should be taxed as wages.
Most States Define Unemployment Compensation as Taxable Income
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Most U.S. states, including Alabama, Arizona, Colorado, Connecticut, Delaware, Georgia, Hawaii, Iowa, Idaho, Massachusetts, New York, North Dakota and Wisconsin, do consider unemployment compensation as taxable income and it must be reported when you file your state income tax return. Several states do offer extra deductions or have a sliding scale for reporting unemployment compensation.
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Pennsylvania Defines Unemployment Compensation as Non-taxable Income
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Pennsylvania is one of several states, including California and New Jersey, that does not count unemployment compensation as taxable income for state income tax purposes. Pennsylvania residents are responsible for filing and paying federal income taxes on any unemployment benefits received.
Other Exemptions from Pennsylvania Income Tax
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Pennsylvania has a flat 3.07 percent state income tax rate, but relatively generous exemptions from taxable income. Exemptions from Pennsylvania income tax include capital gains from a principal residence, child support, alimony, pensions, Social Security payments and most qualified retirement plan distributions, public assistance, unemployment compensation, sick leave pay, and most inheritances and gifts up to a certain size.
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