No, let me explain.
$100k - 40k pretax deductions = $60k taxable income to federal and DE, correct.
This $60,000 is being double taxed in PA and DE so PA gives credit for the income being double taxed.
You get credit for the lower state tax on the lowest taxable amount.
- Each state calculates taxable income differently.
- Each state has its own tax rate/ system.
- You get the lowest of both categories as a tax credit.
PA is one of the few states that tax retirement so the $40k is added and taxed, not related to the double taxed income. No DE credit can cover this $40k since it isn't related.
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