Have a Tax Question? Ask a Tax Expert
Pennsylvania taxpayers must report all income distributed their IRA in excess of their contributions on their state tax return.
The same is true for local taxes.That is - your original contribution is distributed tax free, but earning and employer's contribution (if funds were rolled over from 401k or other retirement account) - will be taxable.
You are correct - form 1099R usually doesn't report your original contribution - and that is your responsibility to keep track for that amount.
Please refer to Personal Income Tax Bulletin 2008-1 for additional IRA tax information, including details regarding employer sponsored plans, investment accounts and inherited IRAs.
How do I know if the amount on my 1099-R is taxable on my PA Personal Income Tax Return?
To determine if the amount you received is taxable in Pennsylvania, review boxes 1 through 3 (the amount you received or your distributions) and the PA PIT treatment of box 7 (the codes that will help determine the taxability of your distribution). The Federal Codes contained in box 7 of Form 1099R include:Code 1 & 2 Early distribution. This distribution is taxable for PA purposes, unless: (1) your pension or retirement plan was an eligible plan for PA PIT purposes, and (2) you retired after meeting the age conditions of the plan or years of service conditions of the plan. If your plan was not an eligible plan, or if you have not attained the age or years of service required under the plan to retire, you must determine the PA taxable amount of your distribution. You must use the cost recovery method. This means that you previously paid PA income tax on your contributions to the plan. Therefore, Pennsylvania will not tax your distributions until you have received (recovered) an amount equal to your previously taxed contributions. Consult your plan administrator as to your previously taxed contributions to the eligible Pennsylvania retirement plan.