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December 18, 2006--
Personal
Income Tax Changes
The
new law gives Pennsylvania taxpayers a state personal income
tax deduction for contributions of up to $12,000 a year per
beneficiary to any IRC Section 529 tuition savings plan,
including those offered by other states, and provides a
state tax exemption for distributions from qualified tuition
savings plans.
The
provision, which is retroactive to Jan. 1, amounts to a $25
million tax break for Pennsylvania families saving for
college.
Under
another provision of the new law that is retroactive to Jan.
1, taxpayers can take a state personal income tax deduction
for their contributions to health savings accounts and do
not have to report employer contributions as income.
The
accounts permit consumers to contribute a percentage of
salary to help pay for future qualified purchases of medical
and health care services and products. The state income tax
deduction is capped at the maximum level allowed under
federal law.
Business
Tax Changes
The
bill also pares business taxes in fiscal year 2007 by a
total of $249 million by speeding up the phase-out of
Pennsylvania’s capital stock and franchise tax. The tax
will be eliminated in 2011 under the timetable now in
effect.
The
new law reduces the rate by 0.1 mills, to 4.89 mills,
retroactive to Jan. 1. Future cuts will further trim the
rate to 3.89 mills for tax year 2007, 2.89 mills for tax
year 2008, 1.89 mills for tax year 2009, and 0.89 mills for
tax year 2010.
Also
included in the new law is a provision to ensure that a
corporation that elects S corporation tax status for federal
tax purposes is automatically treated as an S corporation
for
Pennsylvania
state tax purposes, unless all its shareholders elect not to
be taxed as a Pennsylvania S corporation.
Prior to this law, Pennsylvania had been one of only a few
states that required a separate S corporation election for
federal and state tax purposes, a quirk in the law that
sometimes results in unsuspecting small businesses paying
taxes at a rate of 9.99 percent rather than the S
corporation rate of 3.07 percent.
For
more information, contact Gene Ciociola at 215-564-1900.
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