Key Tax Provisions of the 2022–2023 Pennsylvania Budget
July 8, 2022 |
Governor Wolf signed the 2022–2023 Pennsylvania budget legislation into law. While the budget includes investments in education, housing, and environmental programs, there are several significant provisions that impact business and individual income taxpayers. Key tax provisions from the legislation include:
Corporate Net Income Tax
- The most popular headline from the PA budget legislation is a reduction of the corporation net income tax rate. For taxable years beginning January 1, 2023, the corporate net income tax rate is reduced from 9.99% to 8.99%. The rate will be reduced 0.5% each year until it reaches 4.99% in 2031. This change will move PA from having the second-highest corporate tax rate in the country to having one of the lowest tax rates based on current state tax rates.
Pass-Through Entities and Personal Income Tax
- Effective for the 2023 tax year, PA will follow the federal tax treatment for IRC Section 1031 like-kind exchanges of real estate. Section 1031 exchanges effectively allow taxpayers to defer the gain on the sale of real estate by rolling the proceeds and the gains into replacement property within the allotted time. Pennsylvania was one of the few remaining states in the country that did not allow like-kind exchanges for real estate.
- Also effective for the 2023 tax year, PA will conform to the federal expensing rules under IRC Section 179. This change increases the amount of property able to be expensed under Section 179 from $25,000 per year to $1,080,000 per year (indexed for inflation). As a reminder, PA does not currently allow accelerated bonus depreciation, so the increase of Section 179 will provide new opportunity for business owners to expense eligible asset purchases.
- The budget increases funding for the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs by $125 million. The increased funding may provide opportunities for new participants to obtain credit through the program or allow existing participants to increase their contribution commitments.
- Effective for the 2022 tax year, the bill creates a new Child and Dependent Care Enhancement Tax Credit Program. The PA credit is modeled on eligibility for the federal child and dependent care credit program, which allows a credit for a percentage of expenses incurred for the care of qualifying individuals while a taxpayer goes to work or looks for work. The federal credit is fully phased-out when adjusted gross income is above $438,000. The PA credit is calculated as 30% of the lesser of $3,000 for one qualifying individual ($6,000 for two or more qualifying individuals) OR the actual amount of qualifying expenses incurred by the taxpayer in the prior taxable year. The credit can save taxpayers with two or more qualifying individuals up to $1,800 in tax ($900 for taxpayers with one qualifying individual). While the credit is refundable, it does not carry back or carry forward and is not able to be sold or assigned.
- For 2022, there will be a one-time 70% increase in the property tax and rent rebate program for seniors. The additional rebate will be distributed automatically to individuals who have already filed rebate claim forms for the 2021 tax year. For individuals that qualify, rebate forms for 2021 can be filed until December 31, 2022.
Our team will continue to monitor the legislative changes as additional guidance is released. Please contact your Simon Lever trusted advisor for more details about how the above information may impact you.
Disclaimer: Information provided by Simon Lever as part of this blog post is intended for reference only. This information is not a substitute for seeking professional advice from a Simon Lever advisor. Although Simon Lever has made every effort to ensure that the information provided is accurate, the reader assumes all responsibility for the use of this information.