Types of business taxes in Pennsylvania
As an employer in Pennsylvania, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your business’s finances is important.
Federal taxes
Regardless of which state you open a business in, you'll be responsible for federal taxes. There are dozens of federal tax forms with unique due dates and requirements, so using an accountant or small business accounting software can help you avoid mistakes that could lead to overpayment or penalties.
As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:
Personal tax filing
Federal income tax returns:
Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.
Business tax filing
Business owners have additional filing requirements, depending on the business structure:
- Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
- Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
- Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
- S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
- Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.
Self-employment tax
If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment taxes
As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA).
State taxes
Pennsylvania collects several types of taxes to fund its government, such as the Corporate Net Income Tax (CNIT), excise taxes, franchise taxes, property taxes, and others.
Corporate Net Income Tax (CNIT)
In Pennsylvania, corporations are subject to the Corporate Net Income Tax (CNIT).
What is the Corporate Net Income Tax rate?
As of January 1, 2025, the CNIT rate is 7.99%, down from 8.49% in 2024, with plans to decrease further to 4.99% by 2031.
How is the CNIT calculated?
The Corporate Net Income Tax (CNIT) is calculated based on a corporation's federal taxable income, adjusted by specific state-mandated additions and subtractions.
Adjustments include state income taxes deducted on the federal return, as well as subtractions, like income exempt from Pennsylvania tax, such as interest from U.S. government obligations. Once these adjustments are made, any eligible net operating loss (NOL) deductions are applied, and the resulting amount is multiplied by the applicable CNIT rate to determine the tax liability.
Who may be liable for the Corporate Net Income Tax?
Domestic and foreign corporations are required to pay the corporate net income tax for engaging in business activities, operating, or having capital, property, or inventory in Pennsylvania. Any corporation maintaining inventory within the state is also subject to this tax.
Pennsylvania has established economic nexus standards for corporate net income tax purposes. A corporation has nexus if it has $500,000 or more of gross receipts sourced to Pennsylvania, regardless of physical presence in the state. A corporation may also have nexus if it:
- Does business in Pennsylvania
- Carries on activities in Pennsylvania
- Employs capital or properties in Pennsylvania
- Owns property in Pennsylvania
- Has one or more employees conducting business activities on its behalf in the state. This includes situations where a Pennsylvania resident is working from home for an out-of-state corporation unless the activity is protected by certain laws.
Check the Commonwealth of Pennsylvania website for more information.
Franchise taxes in Pennsylvania
Pennsylvania does not levy a franchise tax. Instead, as noted above, corporations operating in the state are subject to the Corporate Net Income Tax (CNIT), which is based on federal taxable income with specific state adjustments.
Excise taxes
Excise taxes are special taxes imposed on specific goods or services. In Pennsylvania, these taxes apply to a range of products and activities, including:
- Liquor: All wine and spirits sold through the Pennsylvania Liquor Control Board (PLCB) stores are subject to an 18% tax, also called the “Johnstown Flood Tax.”
- Direct wine shipments: There is a $2.50 per gallon excise tax on direct wine shipments.
- Cigarettes: The tax rate is $2.60 per pack of 20 cigarettes or little cigars ($0.13 per stick) or $26 per carton of 10 packs.
- E-Cigarettes and vapor products: The tax rate for e-cigarettes is 40% of the purchase price from the wholesaler.
Visit the Commonwealth of Pennsylvania website for detailed information on tax types and rates.
Unemployment tax
Pennsylvania's Unemployment Compensation (UC) taxes support the state’s UC Trust Fund, which provides temporary income assistance to individuals who lose their jobs through no fault of their own. These taxes are mandatory for employers and help ensure financial stability for the workforce while funding critical unemployment benefits.
2025 UC tax rates are 1.419% to 10.3734% based on experience ratings. Employers must pay UC taxes on the first $10,000 of each employee’s wages and contribute 0.07% of their gross wages to the UC Trust Fund.
Businesses must register with the Pennsylvania Department of Labor and Industry and report and pay the required unemployment taxes. Complying with these requirements can be complex, so it’s a good idea to work with a knowledgeable tax professional who can help your business navigate the details.
Local taxes
In addition to federal and state taxes, many cities, counties, and other jurisdictions in Pennsylvania levy other kinds of local taxes to fund essential services and infrastructure such as schools, roads, police, and fire protection. These taxes often include local sales taxes, property taxes, and specific use taxes.
Sales and use taxes
Pennsylvania has a statewide sales tax rate of 6%. However, two local jurisdictions levy their own sales tax on top of the state tax.
- Philadelphia: There is an additional 2% local sales tax in Philadelphia. This means in Philadelphia, the total sales tax is 8%.
- Allegheny County (including Pittsburgh): There is a 1% local tax, resulting in a 7% sales and use tax rate.
Pennsylvania combines its state sales tax with its use tax. Use tax applies to taxable items or services purchased outside of Pennsylvania for use within the state when no sales tax was paid at the time of purchase. This includes purchases made online, by phone, or from out-of-state sellers. A use tax ensures that all taxable goods and services are fairly taxed. The use tax rate is the same as the sales tax rate: 6% state tax plus applicable local taxes.
Remote seller considerations
In Pennsylvania, remote sellers—businesses located outside the state that sell to Pennsylvania customers via the internet, mail, phone, or similar methods—are required to collect and remit Pennsylvania sales tax if their annual gross sales into the state exceed $100,000.
This economic nexus threshold means that even without a physical presence in Pennsylvania, remote sellers meeting the sales threshold must register for a Sales, Use, and Hotel Occupancy Tax License and comply with state tax obligations.
For detailed information, remote sellers can visit the Commonwealth of Pennsylvania website and register their businesses at the Pennsylvania Department of Revenue's online portal.
The Philadelphia Business Income & Receipts Tax (BIRT)
Local jurisdictions may have unique taxes, such as Philadelphia’s Business Income & Receipts Tax (BIRT). This tax is on all businesses operating in the city. Businesses with taxable gross receipts of $100,000 or less are exempt from filing. Returns and payments are due annually by April 15. For more details, visit the City of Philadelphia Tax Center.
Property taxes
Property taxes can have a huge impact on your company’s operating costs. Since property taxes are levied by local governments, counties, or school districts, the rates in Pennsylvania can vary, depending on your location. Property taxes are based on the assessed value of your property. For example, Philadelphia charges 1.3998% of the assessed property value.
