PA Local Tax on Federal Law Enforcement Retiree under age 59 1/2

[user17745312587]

A 52-year-old retired federal law enforcement officer has met all the requirements for early retirement. It appears that Pennsylvania does not tax this pension, nor does it tax distributions from the Thrift Savings Plan (TSP). However, when submitting a local tax return through Berkheimer, local taxes are being applied due to the distribution code being 2 (indicating an early distribution with exemption).

This raises the question: if Pennsylvania state tax is exempt, should the local tax also be exempt? Unfortunately, there doesn’t seem to be a definitive answer on this matter. 

[user17745312587]

Wow! the internet is stumped.  

[RogerD1]

Per the Pennsylvania Municipal Retirement System:  "Retirement benefits are subject to federal income taxes; however, retirement benefits are not subject to Pennsylvania state and local taxes."

Even though your pension wouldn't be a part of that system, most of my research indicates that Pennsylvania municipalities tax wages and "net profits", but not retirement income.  Based on this, pension income should not be taxed on a local level in PA.