Pennsylvania Additions to Income
Gambling and Lottery Winnings
PA law imposes its income tax on PA residents on all gambling and lottery winnings from any source, except prizes from playing the Pennsylvania State Lottery. As a PA resident, you must include lottery winnings from other states and countries.
PA law imposes its income tax on nonresidents on all gambling and lottery winnings from PA sources, except prizes from playing the Pennsylvania State Lottery.
Gambling and lottery winnings include cash, the value of property (automobiles, jewelry, electronic devices, appliances, clothes, etc.), the value of the use of property (trips, vacations, airline tickets, cruises, etc.), and other items of value. You may only deduct your costs of gambling, wagering, betting, and playing lotteries from your winnings. You may not deduct any expenses (programs, tip sheets, travel, meals, lodging, etc.) that you incurred to take part in gambling, wagering, betting, and lottery activities.
Note: You may not deduct the cost of PA State Lottery tickets from other PA taxable gambling and lottery winnings.
Powerball and Mega Millions - If you purchase a Powerball or Mega Millions ticket in Pennsylvania, whether a PA resident or not, any prize you win is not taxable for PA PIT purposes. If you are a PA resident and purchase a Powerball or Mega Millions ticket in another state, any prize you win is PA taxable income. Spouses must report their winnings separately.
Documenting Gambling and Lottery Winnings and Losses - Taxpayers claiming gambling winnings and losses must be able to document their winnings and losses. This documentation should not be included with your return, but may be requested at a future date by the Department. You should keep an accurate diary or similar record of winnings and losses. In addition to a diary, you should have other documentation to support the entries within the diary. Some but not all of the documents that can be used to support gambling winnings and losses include: Federal Form W-2G, Certain Gambling Winnings; Federal Form 5754, Statement by Person(s) Receiving Gambling Winnings; wagering tickets; canceled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided by the gambling establishment. Some examples of the record keeping for slot or electronic gaming machines may include a record of the machine number and all winnings by date and time the machine was played as well as statements of actual winnings, payment slips, or other documentation provided by the gambling establishment. Record keeping for harness or horse racing includes a record of the races, amounts of wagers, amounts collected on winning tickets and amounts wagered on losing tickets as well as the tickets themselves. For more information regarding other forms of gambling and the record keeping and documentation to support gambling winnings and losses, please see IRS Publication 529, Miscellaneous Deductions.
PA Resident Shareholder and/or Partner of an S-Corporation or Partnership from another State
If you are a PA resident shareholder of an S corporation or a PA resident partner in a partnership that does business entirely within another state, the entity is also required to file a PA-20S/PA-65, PA S Corporation/Partnership Information Return as a result of having a PA resident shareholder or partner. You should receive a PA Schedule RK-1 from that entity which you must submit with your PA-40 return to report your share of the income (loss) whether distributed or not, as shown on your PA Schedule(s). All the shareholders may also elect to not be taxed as a PA S Corporation by filing Form REV-976, Election Not To Be Taxed As A Pennsylvania “S” Corporation.
Reporting Rental Income (Loss) as Business Activity on Line 4 or as Rents on Line 6
Rental activity may be a business activity if meeting the conditions described below. If in business, you report your net profit (loss) on a PA Schedule C. If not in the business of rents, you report your rental activity on a PA Schedule E on Line 6. You report rental business when:
1. You offer the use of your property with the intention of realizing a profit; and
2. The leasing of your property is characterized by regularity and continuity of activities; and
3. You offer the use of your property on a commercial basis to others in a marketplace and at least one of the following applies:
- The average period of customer use is 30 days or less; or
- The property is customarily made available for use only during defined business hours; or
- In addition to the property, the taxpayer also provides significant services (see explanation below) to the lessee; or
- The taxpayer incurs significant operating expenses in making the property available for lease; or
- The leasing activity is incidental to a real estate sales business.
For additional information pertaining to Pennsylvania Additions to Income, please see Form PA-40 Instructions.