The 2022-2023 Pennsylvania Budget was signed by Governor Tom Wolf on July 8, 2022. It includes several important changes to both corporate and personal income taxes. We identified some of the changes likely to impact the greatest number of taxpayers and these are outlined below.
Reductions in the Corporate Income Tax Rate: The current corporate income tax rate of 9.99% will be reduced by a full percentage point to 8.99% on January 1, 2023. From there, the rate will further be reduced by one-half a percentage point (0.50%) each year until 2031, when it will reach 4.99%.
Depreciation Expense and Section 179: Previously, the state of Pennsylvania did not adhere to the federal depreciation guidelines regarding section 179 and limited the deduction to $25,000 per year on personal income tax returns. Under the new budget, PA will conform to the federal limits for property placed in service in tax years beginning after December 31, 2022. The limit for this election to deduct the cost of certain qualifying property in the year it is placed in service is $1.08 million.
Section 1031 Exchanges: Pennsylvania will follow the guidelines of federal section 1031 which allows the gain from a like-kind exchange of real estate property to be deferred for personal income tax purposes. This change is effective for transactions occurring in tax years beginning after December 31, 2022.
Pennsylvania Dependent and Child Care Enhancement Program: A new program is being created to provide a refundable credit to taxpayers for expenses paid for childcare and household services deemed necessary for an individual to be employed. This is similar to the Dependent Care Credit that is currently offered for federal tax purposes. Eligible dependents are individuals under the age of 13 and individuals or spouses physically or mentally incapable of caring for themselves. The amount of the credit will be 30% of the related expenses, with a maximum credit of $315 for one dependent or $630 for two or more dependents.
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If you have any questions regarding the changes that are occurring and how they could affect you, please reach out to your accountant at Gift CPAs.
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