Some of you know far more about PA Income Tax than I--here is the real world hypothetical As a condition of employment a $50,000 a year employee is required as a condition of employment to contribute say 4% of salary to a qualified retirement plan and the deduction is made directly by employer ..of course the correct taxable salary for Federal purposes is $48,000. The employer also contributes to said plan, no tax questions as to that.
Yes I know 61 PaCode 101.6(c)8 says such contributions are included in pay in PA but that is inconsistent with PA's own revenue rulings! BOTH WAYS
Clearly both rules are consistent as to constructive receipt! !
So both ways to issue the determining factor was "constructive receipt or lack of same" And in my hypothetical it is clear that employee lacks any element of constructive receipt and the plan is clearly a qualified plan and nothing is voluntary about the contribution ---
OK so why is the employee contribution added back to income in PA?
And the rather shallow response I got from PaDept Of Rev is it must be taxed on one side or other--which is not the question at all--and besides--the #2 example clearly and openly results in NO tax at either end!
So if PA is bound by own rules to follow constructive receipt doctrine--why is it taxable?
Just don't fight it. PA does not allow ANY deduction for retirement as we don't tax it as long as it is normal (early distributions have separate rules). PSERS, etc is required, yet taxable to PA as they don't pay tax on a normal withdrawal.
And if you feel it is worth 3.07% (plus local) go ahead and fight. Personally, not worth the time or effort.
Helen, EA in PA
answered 25 Feb '10, 02:53
Helen EA in PA