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Category: Pennsylvania

Pennsylvania Schedule SP- Tax Forgiveness Credit

What is Tax Forgiveness?

Tax Forgiveness is a credit that allows eligible taxpayers to reduce all or part of their PA tax liability. Tax Forgiveness:

  • Gives a state tax refund to some taxpayers; and
  • Forgives some taxpayers of their liabilities even if they have not paid their PA Personal Income Tax.

Who is Eligible for Tax Forgiveness?

You, and your spouse if applicable, are eligible if:

  1. You are subject to PA Personal Income Tax. You and/or your spouse are liable for PA tax on your income (or would be liable if you earned, received, or realized PA taxable income); and
  2. You are not a dependent on another person's federal tax return; and
  3. You meet the eligibility requirements.

Note: A dependent child may be eligible if he or she is a dependent on the PA Schedule SP of his or her parents, grandparents, or foster parents.

Filing Status Information

Separated:

• Separated and living apart at all times during the last six months of the year; or
• Separated pursuant to a written separation agreement.

Married:

Married and lived together; or
• Separated and lived apart, but for less than the last six months of the year; or
• Separated, but not by a written separation agreement

Deceased means you are filing for a person who died during 2011. You must annualize the decedent’s income before determining if he or she is eligible for Tax Forgiveness. When claiming Tax Forgiveness together, one of you must meet the eligibility requirements, but you must use your Joint Eligibility Income and Eligibility Income Table 2 included in the state instructions . When filing separately, the taxpayer and spouse must combine their eligibility incomes to determine if they meet the eligibility requirements. A married taxpayer cannot claim Tax Forgiveness independently of his or her spouse. Married claimants are not dependents of one another for Tax Forgiveness purposes, even when one spouse does not have any Eligibility Income. You each must use your Joint Eligibility Income and Eligibility Income Table 2 found in the state instructions. When one spouse is claimed as a dependent on another person’s federal income tax return, otherwise qualifying married taxpayers must file separately.

Eligibility Income

This is the information you will need to fill out the Schedule SP within our program. This Schedule is located within the Credits section of the program. The numbers 2-10 relate to the information provided on the state's instructions for this schedule.

2. Nontaxable Income for Schedule SP- Include income and gains from investments in direct obligations of the federal government, Pennsylvania, and political subdivisions of Pennsylvania. Include the nontaxable portion of gain from the sale of any property. Include nontaxable income received as a beneficiary of an estate or trust. For decedents only: in addition to any annualized income for nontaxable interest, dividends, and gains

3. Alimony- Enter the amount of federally taxable alimony that you receive.

4. Insurance Proceeds and Inheritances- This amount includes the total proceeds received from life or other insurance policies. Also, include inherited cash or the value of property received.

5. Gifts, Awards, and Prizes- Include the total amount of nontaxable cash or property received as gifts from others. Also, include awards received in recognition of civic and social achievements and prizes from all games of the Pennsylvania Lottery.

6. Nonresident Income- Part-year residents and nonresidents must complete this line. Enter the total of all income, not already reported on this schedule, that you (and your spouse, if applicable) earned, received, and realized while residing outside Pennsylvania. Include any amount exempted from taxation under the Military Spouses Residency Relief Act. (See our Military/States article for additional information.)

7. Nontaxable Military Income- This amount represents the difference between the total military income you earned and the amount you report on your PA tax return. Do not include combat zone pay and hazardous duty pay.

8. Gain Excluded from the Sale of a Residence- Enter your nontaxable gain.

9. Nontaxable Educational Assistance- Include the total value of all nontaxable scholarships, fellowships, and stipends. Also, include the value of tuition reductions offered as part of your employer’s benefit plan.

10. Cash Received for Personal Use from Outside Your Home- Include the following kinds of nontaxable income when determining your Eligibility Income:

• Support you receive from a spouse or former spouse who does not live in your household. Do not include payments you receive for child support here.

• Any payments received from other persons outside your household, including nontaxable cash or property received for personal use, such as cash received from a parent to buy clothing, or gifts from grown children. Do not include monies paid pursuant to a cost-sharing arrangement.

• Nontaxable payments to your employer’s cafeteria plan for hospitalization, sickness, disability, or death, supplemental unemployment, or strike benefits.

• Payments received as a foster parent for providing in-home care for foster children.

For additional information pertaining to PA Schedule SP (Tax Forgiveness Credit), please click here and refer to the instructions for Form PA-40.