Pennsylvania Tax Form PA-40 Schedule A/B - Interest Income/Dividend Income Instructions

PA Schedule A (Line 2)

If your total PA taxable interest income is $2,500 or less, you must report your income on Line 2 of the PA-40, but you do not have to complete and submit a schedule. If your PA taxable interest income is more than $2,500, you must complete PA Schedule A, with the name, and PA taxable interest of the payer from each Form 1099 or other statement.

PA taxable income includes interest from:

• Savings and loan associations
• Credit unions, even if reported as dividends on your statement
• Bank deposits
• Bonds (except as exempted below)
• Certificates of deposit
• Interest-bearing personal checking accounts
• State, federal, and local tax refunds
• Other deposits, investments, and obligations
• GNMA and FNMA certificates and other obligations that are guaranteed by the U.S. government, but not direct obligations of the U.S. government
• Obligations of other states or countries
• Mutual savings banks and cooperative banks, even if reported as dividends

IMPORTANT: Also report on PA Schedule A:

• Income on life insurance contracts, annuities, or endowments if reported for federal income tax purposes.
• Income from charitable gift annuities included in federal gross taxable income as ordinary or capital gain income.
• Any amount paid out of an Archer Medical Savings Account or Health Savings Account that is includable in the gross income of an account beneficiary for federal income tax purposes. Included in this category are distributions used for any purpose other than to pay qualified medical expenses, any amount considered to be excess contribution distributions not previously included in income, or any amount of the account’s income attributable to excess contributions.
• Taxable amounts distributed from IRC Section 529 Qualified Tuition Account Programs for non-educational purposes. Please check our Web site at www.revenue.state.pa.us for more information on how to determine the taxable portion of any distributions for non-educational purposes.

PA taxable income does not include interest from:

• Direct obligations of the U.S. government (U.S.Treasury Bonds, Notes, Bills, Certificates, and Savings Bonds)
• Direct obligations of the Commonwealth of Pennsylvania
• Direct obligations of political subdivisions of Pennsylvania

For a list of exempt obligations, request Tax Exempt Obligations for PA Personal Income Tax Purposes (Form REV-1643).

NOTE: You must include PA tax-exempt interest in Eligibility Income for Tax Forgiveness purposes.

PA Schedule B (Line 3)

If your total PA taxable dividend and capital gains distributions income is $2,500 or less, you must report your income on Line 3 of the PA-40, but you do not have to complete and submit a schedule. If your PA taxable dividend income is more than $2,500, you must complete PA Schedule B, with the name of the payer, and the PA taxable dividend from each Form 1099 or other statement.

Capital Gains Distributions Capital gains distributions are taxable as dividend income on Line 3. Do not report capital gains distributions on PA Schedule D.

Stock Dividend Reinvestment Plans Under a stock dividend reinvestment plan, you elect dividends in the form of stock, rather than cash or other property. You must include the stock's fair market value as dividend income as of the date paid.

PA taxable dividend income does not include:

• Dividends distributed by a corporation to its stockholders as stock, if the distribution is not personal income for federal purposes.
• Distributions designated as return of capital by utility companies and other corporations that reduce the basis of your stock in the corporation. NOTE: Once such distributions reduce your basis to zero, further distributions are Taxable Distributions from C Corporations on PA Schedule D. See page 33.
• Dividends from deposits or withdrawals from accounts paid by savings and loan associations, mutual savings banks, cooperative banks, and credit unions. Report these payments as PA taxable interest income on Line 2 of your PA-40.
• Ordinary dividends paid by a mutual fund or a registered investment company that the fund/company statement designates as being exempt-interest dividends. Use the percentage of the total dividend income that is from exempt PA and exempt federal obligations to determine the tax exempt portion of the dividend income.
• Dividends from PA tax-exempt obligations. Request Tax Exempt Obligations for Pennsylvania Personal Income Tax Purposes (Form REV-1643) for a list of exempt obligations.
• Dividends distributed under a charitable gift annuity are not taxable. However, after you recovered the amount you donated, you must report further distributions as taxable gains on PA Schedule D.

NOTE: You must include PA tax-exempt dividend income in Eligibility Income for Tax Forgiveness purposes.