In general in PA, retirement income is not taxable: Payments from retirement accounts like 401(k)s and IRAs are tax exempt. PA also does not tax income from pensions for residents aged 60 and over. Social Security income is not taxable: Just like with a pension, in Pennsylvania, Social Security is tax exempt.
If your Form 1099-R is from a qualified retirement plan or IRA it is not taxable in PA.
The code on Form 1099-R determines whether your 401(k) withdrawal is taxable to Pennsylvania. However, you retired after 59 ½ and your 401(k) is an eligible plan so it should be tax exempt.
Code 7 Normal Distribution. This distribution from an eligible Pennsylvania retirement plan is not taxable if you met the plan requirements (the age and/or years of service required by the plan) for retirement, and retired after meeting those requirements.
If the distribution code shows as a "1" or "2" for an early withdrawal, then the amount will transfer to the PA-40 and be included in gross income on the state return.
If your plan was not an eligible employer-sponsored retirement plan, or if you have not attained the age or years of service required under the plan to retire, you must determine the PA-taxable amount of your distribution. You must use the cost recovery method to determine this amount.
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