Bill > HB1703

This bill modifies Pennsylvania's personal income tax laws to provide an optional new tax mechanism for pass-through entities (such as partnerships and S corporations) to pay state income tax at the entity level. Under this new provision, pass-through entities can annually elect to pay taxes on behalf of their owners/shareholders, which would effectively allow them to work around federal limitations on state and local tax deductions. If a pass-through entity makes this election, it will pay tax on each owner's share of income at the entity level, and the owners will then receive a refundable tax credit for their proportional share of taxes paid. The bill specifies detailed rules for making the election, including timing, reporting requirements, and liability provisions. Owners of the pass-through entity would still be responsible for their individual tax returns, but the entity-level tax could provide tax planning benefits, particularly for resident and non-resident owners. The provisions would apply to taxable years beginning after December 31, 2025, giving businesses time to understand and prepare for the new optional tax approach. This legislation aims to provide more flexibility for pass-through entities in managing their state tax obligations and potentially mitigating the impact of federal tax law limitations.

Budget and Finance

https://www.legis.state.pa.us/cfdocs/billinfo/bill_history.cfm?syear=2025&sind=0&body=H&type=B&bn=1703