PA - Resident Credit for Tax Paid to Another State on Dividends and Interest



The taxpayer paid taxes to another state for interest and dividends. Why isn’t the PA resident credit flowing to the PA-40, line 22?


The resident credit for taxes paid to another state or to another country is limited and does not flow automatically. In all cases, the income must be taxable in Pennsylvania to qualify for the credit.

Resident credit is available on interest and dividend income for taxes paid

  • to another state only if it is classified as business income in Pennsylvania.
  • to another country only if it is classified as interest and/or dividend income in PA and is also subject to tax in other countries from foreign sources.

Credit for tax paid to another state must refer to business income.

The taxpayer can claim the resident credit for taxes paid to another state on dividends or interest only if it is classified as business income:

"If you have interest or dividend income earned by a
business or rental property that is subject to tax in another state, that interest or
dividend income must be classified as Net Income or Loss from the Operation of
a Business, Profession, or Farm or as Net Income or Loss from Rents, Royalties,
Patents and Copyrights in PA to be able to claim a resident credit on that income."

PA Schedule G-L, instructions page 2

The credit must be entered on Schedule G-L (the long form, screen GL).

Credit for tax paid to another country must refer to income that is interest or dividend income in PA.

The taxpayer can claim the resident credit for taxes paid to another country on dividends or interest when that income can be classified as interest and/or dividend income in PA and is also subject to tax in other countries from foreign sources. It can be entered on Schedule G-L.

See the instructions for PA Schedule G-L.