Understanding Your Pennsylvania Paycheck in 2025
Pennsylvania stands out in the US tax landscape with its flat-rate income tax system. Unlike the federal "progressive" system where earning more pushes you into higher brackets, Pennsylvania charges a simple, flat 3.07% on nearly every dollar you earn.
However, simplicity doesn't mean "simple to calculate." The state has strict rules about what is and isn't tax-deductible—for example, your 401(k) contributions do not lower your state taxes, but they do lower your federal taxes. This calculator handles that nuance automatically.
2025 Update: While the state rate holds steady at 3.07%, the federal landscape has shifted. Inflation adjustments have raised the standard deduction to $15,000 for singles and tax brackets have widened, potentially increasing your take-home pay compared to 2024.
The "Pre-Tax" Confusion: 401(k) vs. Medical
One of the most common questions is: "Why is my PA taxable income higher than my Federal taxable income?"
The answer lies in how Pennsylvania treats "pre-tax" deductions:
NOT Deductible in PA
- 401(k) Contributions
- 403(b) Contributions
- Traditional IRA Deductions
You pay the 3.07% tax on this money now, but withdrawals in retirement are tax-free.
ARE Deductible in PA
- Medical Insurance Premiums (Section 125)
- Dental & Vision Premiums
- Health Savings Accounts (HSA) - *Sometimes
These reduce your taxable income for BOTH Federal and State purposes.
The Local Tax Layer: EIT & LST
Almost every Pennsylvania worker pays a local tax on top of the state tax. This consists of two parts:
Earned Income Tax (EIT)
Computed as a percentage of your gross wages. The average is 1.0% (usually split 0.5% to your municipality and 0.5% to the school district). However, cities like Philadelphia (~3.75%) and Pittsburgh (3.0%) are much higher.
Local Services Tax (LST)
A flat tax for "the privilege of working" in a jurisdiction. The maximum is $52 per year. Employers usually deduct this at $1 per week.
Real World Scenario: $65k Salary in 2025
Let's verify the numbers for a single filer earning $65,000/year, contributing $3,250 (5%) to a 401(k), and paying $1,200/year for medical insurance. They live in a standard 1% EIT township.
| Tax Type | Taxable Base | Calculation | Amount |
|---|---|---|---|
| Federal Tax | $45,550 (Gross - 401k - Med - Std Ded) | 2025 Brackets | $5,228 |
| FICA (SS+Med) | $65,000 (Gross) | 7.65% Flat | $4,972 |
| PA State Tax | $63,800 (Gross - Medical ONLY) | 3.07% Flat | $1,959 |
| Local EIT | $65,000 (Gross) | 1.0% Flat | $650 |
| LST | N/A | Flat | $52 |
| Net Pay | ~$47,689 | ||
Deep Dive: What Actually Comes Out of Your Paycheck?
Understanding your pay stub requires decoding a list of cryptic abbreviations. In Pennsylvania, you will typically see a mix of federal, state, and local deductions. Here is a line-by-line breakdown of what to expect.
FED WITHHOLDINGFederal Income Tax
This is usually your largest deduction. It pays for national defense, federal programs, and government operations. The amount is determined by the W-4 form you filled out. If you get a huge refund every year, you are withholding too much here.
OASDI / SS TAXSocial Security
"Old Age, Survivors, and Disability Insurance." This is a mandatory 6.2% flat tax. In 2025, it stops once your earnings hit $176,100. If you have multiple jobs and overpay this, you get the excess back when you file your tax return.
PA CIT / STATEPA Income Tax
This is the 3.07% flat tax discussed above. Remember, it is calculated on your gross pay minus Section 125 health premiums, but including your 401(k) contributions. See PA Department of Revenue for details.
LOCAL / EITEarned Income Tax
This goes to your specific township or borough. If you move during the year, make sure to update your address with HR immediately, or you might pay the wrong municipality and have to fix it (painfully) at tax time.
PA SUI / UC TAXUnemployment Comp
Pennsylvania is one of the few states where employees contribute to the unemployment fund. It is a tiny flat amount (usually 0.06% or similar) withheld from your gross wages. It ensures the state fund remains solvent for laid-off workers.
The "Hidden" Tax: Understanding PA Local Taxes
Pennsylvania has one of the most complex local tax systems in the country. Unlike many states where all income tax goes to the capital, PA allows thousands of local municipalities (cities, boroughs, townships) and school districts to levy their own taxes on your wages.
1. Earned Income Tax (EIT)
This is the big one. It is a percentage of your gross wages.
Residents vs. Non-Residents: You generally pay the EIT rate of the place where you live, not where you work. However, if you work in a place with a tax but live in a place without one, you might still pay a "non-resident" tax to the work municipality.
Rates Vary Wildly: The "standard" is 1%, usually split 0.5% to the municipality and 0.5% to the school district. But "distressed" municipalities (Act 47) can charge much more. For example, Scranton and Pittsburgh have higher rates, and Philadelphia is in a league of its own.
2. Local Services Tax (LST)
This used to be called the "Emergency and Municipal Services Tax" or the "Occupational Privilege Tax."
What is it? It is a flat tax for the "privilege" of working in a specific jurisdiction. The maximum rate is $52 per year.
How is it deducted? If the tax is $52, employers are required to withhold it pro-rata from each paycheck (e.g., $1 per week). If the tax is $10 or less, it might be deducted in a lump sum.
Exemption: If you earn less than $12,000 from all sources within a specific municipality, you can apply for an upfront exemption so this isn't withheld.
Frequently Asked Questions (FAQ)
My paycheck is smaller than I expected. Why?
The most common culprit in PA is the "Local Services Tax" (LST) or an unexpectedly high Local Earned Income Tax (EIT). Some municipalities charge significantly more than the standard 1%. Also, check your federal W-4 settings—if you selected "Single" or "0 dependents," your federal withholding might be aggressive.
Do I pay tax on my bonus in Pennsylvania?
Yes. Pennsylvania taxes bonuses exactly the same as regular wages: at a flat 3.07%. There is no special "bonus tax rate" at the state level. However, for Federal taxes, employers often use a flat 22% withholding rate for bonuses, which can make it feel like they are taxed more heavily (even though the actual liability is reconciled at tax time).
Can I deduct my home office expenses?
Potentially! Unlike the federal return (where W-2 employees lost this deduction), Pennsylvania still allows deductions for "Unreimbursed Business Expenses" (Schedule UE). If your employer requires you to maintain a home office as a condition of employment, you may be able to deduct a portion of your housing costs from your PA taxable income.
I live in Philly but work in the suburbs. Which tax do I pay?
If you are a resident of Philadelphia, you pay the City Wage Tax regardless of where you work. The 2024/2025 rate is approximately 3.75%. You do not pay the local EIT of the suburb where you work; the Philly tax supersedes it. Your employer should withhold the Philly tax if they have a presence there; if not, you must file directly.
About the Author: Marko Šinko
Finance Expert, CPA with 12+ years in tax planning and payroll analysis
Marko Šinko specializes in Pennsylvania state and local tax law, helping individuals and businesses navigate the Commonwealth's complex tax system. With extensive experience in multi-state payroll compliance and local tax optimization, Marko Šinko has helped thousands of Pennsylvania workers maximize their take-home pay through strategic tax planning. Their expertise includes Pennsylvania local earned income tax, Act 32 compliance, and Philadelphia wage tax regulations.