PA Personal Income Tax Guide
Gross Compensation
DSM-12 (08-2022) 2
of 65 www.revenue.pa.gov
Pennsyvania Taxation of Fringe Benefits ......................................................................................................................... 33
Federal Income Tax – Overview ..................................................................................................................................... 33
Pennsylvania Nontaxable – Overview ............................................................................................................................ 33
Employee Expenses for Pennsyvania .............................................................................................................................. 34
Historical Background ..................................................................................................................................................... 34
Overview Federal/Pennsylvania Differences .................................................................................................................. 34
Accountable Plan ............................................................................................................................................................ 34
Unreimbursed Employee Expenses on PA-40 Schedule UE, Allowable Employee Business Expenses ...................... 34
Examples of Allowable Expenses and the Limitations on Those Expenses .................................................................. 35
Nonallowable Expenses ................................................................................................................................................. 38
Nonresidents and Part-Year Residents .......................................................................................................................... 38
Multiple Employers ......................................................................................................................................................... 39
Reimbursements ............................................................................................................................................................. 39
Statutory Employees ....................................................................................................................................................... 39
Allowance for Clothing .................................................................................................................................................... 40
Examples ........................................................................................................................................................................ 40
Critical Information on Schedule UE ............................................................................................................................... 41
Records and Records Retention .................................................................................................................................... 41
Damage Awards .................................................................................................................................................................. 41
Overview – Federal/Pennsylvania Differences ............................................................................................................... 41
Summary of Pennsylvania Personal Income Tax Treatment of Specific Damage Awards ............................................ 41
Damage Awards for Lost Profits for Pennsylvania Personal Income Tax ...................................................................... 41
Damage Awards for Return of Capital for Pennsylvania Personal Income Tax ............................................................. 41
Pennsylvania Treatment of Legal Expenses .................................................................................................................. 42
Guaranteed Payments ........................................................................................................................................................ 42
Gross Non-Employee Compensation ............................................................................................................................... 42
Honorarium ..................................................................................................................................................................... 42
Executor or Administrator Fees ...................................................................................................................................... 42
Expert Witness Fees
....................................................................................................................................................... 42
Jury Fees ........................................................................................................................................................................ 42
Director Fees .................................................................................................................................................................. 42
Foster Care Provider Payments ..................................................................................................................................... 42
Other Miscellaneous Compensation ............................................................................................................................... 43
Federal Form 1099–MISC Income ................................................................................................................................. 43
Pennsylvania Personal Income Tax Treatment of Household Employees .................................................................... 43
Nonresident – Allocation of Pennsylvania Compensation ............................................................................................. 43
Compensation from Sources within Pennsylvania ......................................................................................................... 43
Commissions .................................................................................................................................................................. 43
Compensation Based Upon Years of Continued Service............................................................................................... 43
Compensation Paid on a Daily, Weekly, Biweekly, Semimonthly, Monthly, Quarterly, Semiannual or Annual Basis ... 44
Miscellaneous Compensation ......................................................................................................................................... 44
Prepaid Compensation ................................................................................................................................................... 44
Working Day Explained .................................................................................................................................................. 44
Working Days Employed within Pennsylvania Explained ............................................................................................... 45
The Convenience of the Employer Doctrine ................................................................................................................... 45
Payment Accrual Period Explained ................................................................................................................................ 45
Retirement Income ......................................................................................................................................................... 46
Discharge of Indebtedness ................................................................................................................................................ 46
Discharge of Indebtedness Income for Pennsylvania Personal Income Tax ................................................................. 46
When Is It Taxable .......................................................................................................................................................... 46
Class of income .............................................................................................................................................................. 46
Annuities .............................................................................................................................................................................. 46
Employer Annuity Plan ................................................................................................................................................... 46
Nonqualified Annuities .................................................................................................................................................... 47
Non-Employee Benefit Annuities .................................................................................................................................... 48
Life Insurance Annuity Contracts .................................................................................................................................... 48