What’s new in Pennsylvania for 2026: the Working Pennsylvanians credit, a higher estimated-payment line, and a federal law that mostly passed the state by

The 2026 Pennsylvania return will look almost exactly like the 2025 one, and that is the news. The rate is 3.07%, as it has been since 2004. The eight classes of income, the absence of a standard deduction and the Tax Forgiveness tables are untouched. What is new is a short list: the Working Pennsylvanians Tax Credit, the state’s first earned income credit, is in its second year, with a 2026 maximum that is still to come; the income line above which estimated payments are required rose from $11,000 to $14,000; payments of $15,000 or more must now be made electronically; and Philadelphia trimmed its Wage Tax on July 1. The federal tax law of July 2025, with its new deductions for tips, overtime, seniors and car-loan interest, changed nothing on the PA-40, because Pennsylvania never had the deductions those provisions enlarge. The Department of Revenue said so, item by item.

The reason is structural, and it is worth understanding once. Every other state in this book starts its return from a federal number, adjusted gross income or taxable income, so a federal deduction either flows through or has to be legislated back out. Pennsylvania starts from nothing federal. The PA-40 adds up eight classes of income under the state’s own Tax Reform Code and taxes the total at 3.07%. A federal provision reaches Pennsylvania only when the General Assembly writes it into state law, one provision at a time. When Congress enacts a new deduction, the Pennsylvania default is that nothing happens. In 2025 and 2026, nothing did.

The federal law of 2025, provision by provision

The Department of Revenue published a guidance page on the federal act (it calls it by its formal name, the One Big Beautiful Bill Act) with a line for each provision. The individual lines are short, and they all say the same thing in different words.

The Department’s page does not mention Trump accounts, and as of this writing it has published no position on them (verify). The two 529 items are the only pieces of the federal law that reach a Pennsylvania household, and they reach it through the state’s existing 529 deduction and the PA 529 plan rules, not through a new line on the PA-40.

Two bills in Harrisburg would change the tips and overtime answers. House Bill 1586, introduced June 10, 2025, would exclude overtime from compensation; Senate Bill 1255, introduced March 30, 2026, would exclude tips. Neither has moved out of committee (verify status before print). Until one does, a Pennsylvania server or nurse who sees a smaller federal bill in 2026 will see the same state bill as before.

What did change

The Working Pennsylvanians Tax Credit, year two. Pennsylvania had never had a state earned income credit until the 2025-26 budget, signed November 12, 2025, created one. The credit is 10% of the federal EITC, refundable, and anyone who qualifies for the federal credit qualifies. For 2025 returns the maximum was $805, which is 10% of the federal maximum. The 2026 maximum should be 10% of the 2026 federal maximum, which is a little higher, but the Department has not published the figure; it is to come. The mechanics matter more than the number. The Department computes the credit itself from the federal Form 1040, so the 1040 must be attached to a paper PA-40 or uploaded in myPATH when the federal return was filed elsewhere. A PA-40 filed without the federal copy gets no credit. For a family with two children and a federal EITC of $4,000, the Pennsylvania credit is $400, paid as a refund even when no state tax is owed. See Pennsylvania for families.

Estimated payments: the line moves to $14,000. Pennsylvania requires estimated payments when income not subject to withholding is expected to exceed a set amount, and for 2026 that amount is $14,000, up from $11,000 for 2025. In tax terms it is $430 after withholding and credits. The 2026 estimated tax instructions, REV-413(I), also give the next two steps: $17,000 for 2027 and $20,000 for 2028. The safe harbors did not change: 90% of each installment’s actual tax, or 100% of the prior year’s net taxable income times 3.07%, with no 110% tier for higher earners. A retiree with a pension, an IRA and Social Security has none of this income in a Pennsylvania class, so the threshold rarely touches retirees; it touches landlords, the self-employed, investors with gains, and anyone with a side business.

Large payments must be electronic. REV-413(I) for 2026 says payments of $15,000 or more must be made electronically, and a paper check of that size draws a penalty of 3% of the payment, capped at $500. myPATH takes payments with or without an account.

Student loan interest, continuing. The deduction of up to $2,500 per filer for student loan interest, new on Schedule O for 2025 returns, continues for 2026. At 3.07% it is worth up to $77 a filer, $154 for a couple who each pay interest. It is one of only a handful of deductions Pennsylvania allows at all.

Schedule D and Schedule OC. The 2025 Schedule D added the digital asset question and room for like-kind exchanges; Schedule OC was redesigned and now carries the employer 529 and child care matching credits (verify the Act citation). Both carry into 2026. Neither affects a wage earner.

Philadelphia’s Wage Tax, lower on July 1. The city’s Wage Tax fell from 3.74% to 3.735% for residents and from 3.43% to 3.425% for nonresidents on wages paid on and after July 1, 2026, according to the city Department of Revenue’s rate table. A Philadelphia resident earning $60,000 saves about $1.50 for the half year. The city says the rates will keep declining over the next five years but has not published the later figures. The 2025 School Income Tax rate, on a resident’s dividends, short-term gains and similar unearned income, is 3.74%; the 2026 rate is to come. Nothing in the state return gives credit for either.

Fast File, and no Direct File. New in the 2026 season, the Department mailed letters to the simplest filers, single full-year residents with one W-2 already on file and nothing else to report, offering to file the PA-40 from a QR code in myPATH with the W-2 pre-loaded. Expect it again in 2027 for the same narrow group. IRS Direct File, which Pennsylvania joined for 2025, was not offered for 2026, so the free route is myPATH for the PA-40 plus a separate federal product. See Pennsylvania calendar and forms.

Property Tax/Rent Rebate, indexed again. The household income limit for 2025 rebates, applied for in 2026, is $48,110 under the indexing in Act 7 of 2023. The maximum standard rebate stays at $1,000, with supplements of $190 to $500. Applications are due December 31, 2026; the limit for 2026 rebates is to come. See Pennsylvania for retirees.

Inheritance tax, procedure only. Act 50 of 2025, effective January 16, 2026, sends heirless intestate estates to a local endowed community fund rather than the Commonwealth. The rates are unchanged: 0% spouse, 4.5% children and parents, 12% siblings, 15% everyone else, from the first dollar.

What did not change

• The rate: 3.07% on every class of income, for every filing status, since 2004.
• Tax Forgiveness: 100% forgiveness at eligibility income of $6,500 single or $13,000 married, plus $9,500 per dependent child, stepping down 10 points for each $250 and gone at $8,750 / $15,250 plus $9,500 per child. These figures are not indexed and the Department’s table is the same for the 2026 season as before.
• The Child and Dependent Care Enhancement Tax Credit: 100% of the federal credit as figured under the 2022 percentages, maximum $1,050 for one dependent and $2,100 for two or more, minimum $600 / $1,200 with at least $3,000 of expenses per dependent. The federal credit’s rise to 50% for 2026 does not lift it.
• Retirement income: pensions and 401(k) distributions after retirement, IRA withdrawals after 59½, Social Security and Roth conversions all stay outside Pennsylvania income.
• The 529 and ABLE deduction: up to the federal gift-tax annual exclusion per beneficiary per taxpayer, $19,000 for 2025, and $19,000 for 2026 if the federal exclusion held as expected.
• No pass-through entity tax election, no QBI deduction, no bonus depreciation, no capital-loss carryforward, no netting of a loss in one class against income in another.
• The filing threshold: a return is due once income produces $1 of tax, which at 3.07% is about $33 of taxable income.

The ballot and the election

Pennsylvania has no citizen initiative, and the General Assembly placed no tax question on the November 3, 2026 ballot. The 2026 return is settled; anything for 2027 would come in the budget due by June 30, 2027.