Pennsylvania Special Tax Forgiveness Credit - Confusion

[dougej99]

We are Delaware residents and my spouse works part-time in PA. TurboTax indicates that we are eligible for the PA Special Tax Forgiveness Credit for 2021. The PA earned income was $9,100. However, we also received $40k in Social Security and $15k in interest and dividends. It looks like PA only considers earned income when qualifying people for this credit. Does this sound correct? One more thing - we were in the same tax situation last year, and this option never was mentioned. Are we really eligible for this? Sounds to good to be true.

[ErnieS0]

No. That does not sound correct. If you are a nonresident, you’ll have to include your out of state income when completing Schedule SP.

When completing the section, TurboTax will ask you to enter your Income earned while not a resident of Pennsylvania. You may have to make other adjustments, such as untaxed support.

Pennsylvania says: “Enter the total of all other income earned, received and realized while residing outside PA. This includes income that would be taxable if earned and received in Pennsylvania and nontaxable income you would report on this schedule if you were a PA resident.”

Instructions For PA Schedule SP

[dougej99]

Thank you for your reply. I was able to locate the line you quoted and it clears things up.

However, the problem persists - the questions that TurboTax walks one through do not ask about unearned income, it only asks for "non-taxable Pennsylvania income".  I guess that means our income not received from a PA employer. In fact, TT specifically asks one to enter their income earned while a non-resident. To me, earned income is wages. There is NO mention of dividends, interest, capital gains, etc. There is no additional information like what is provided in the PA instructions that you linked to:

"Enter the total of all other income earned, received and realized while residing outside PA. This includes income that would be taxable if earned and received in Pennsylvania and nontaxable income you would report on this schedule if you were a PA resident."

The irony here is that TT presents this scenario to me as the default option. I still haven't figured out how to file the return correctly - the same way I have done it for over ten years. Turbo Tax really needs to clarify their instructions in this category.

Thanks again for your help.

[ErnieS0]

The SP Credit is confusing enough for Pennsylvania residents. The credit is based on total household support, so it includes some nontaxable income.

Social security benefits are excluded.

“To qualify for the credit, it is necessary to calculate both the taxable and nontaxable income. (Do not include Social Security benefits, retirement payments, unemployment or child support in the calculation.) If you are married, the percentage of Tax Forgiveness will be based on the joint eligibility income, even if filing a separate return.”

What is Tax Forgiveness?