Pennsylvania Schedule Sp Instructions
PA SCHEDULE SP (LINE 21)
What is Tax Forgiveness?
Tax Forgiveness is a credit that allows eligible taxpayers toreduce all or part of their PA tax liability. Tax Forgiveness:
- Gives a state tax refund to some taxpayers; and
- Forgives some taxpayers of their liabilities even if theyhave not paid their PA personal income tax.
Who is Eligible for Tax Forgiveness?
You, and your spouse if applicable, are eligible if:
- You are subject to PA personal income tax. You and/oryour spouse are liable for PA tax on your income (orwould be liable if you earned, received, or realized PA- taxable income);
- You are not a dependent on another person's federal taxreturn; and
- You meet the eligibility requirements.
NOTE: A dependent child may be eligible if he or she is a dependent on the PA Schedule SP of his or her parents, grandparents, or foster parents. See Page 35.
How Do I Claim Tax Forgiveness?
To claim Tax Forgiveness, complete and submit a PASchedule SP, and:
- Determine your Eligibility Income. If married, whether filingjointly or separately, you must determine your total (yourEligibility Income plus your spouse's Eligibility Income) joint Eligibility Income in Part C.
- Determine your Filing Status in Part A.
- Calculate your Tax Forgiveness Credit, using the applicable Eligibility Income Table, in Part D.
IMPORTANT: There is no advantage to filing separatelybecause married claimants must report their JointEligibility Income on PA Schedule SP. You must include yourspouse's SSN if filing separate.
Claiming Dependents on Separate PA Schedules SP: It is possible that you and your spouse file jointly for federalpurposes, but must file separately for PA purposes. If youqualify for Tax Forgiveness, you must each complete PASchedule SP as if filing jointly. You each must report the sameinformation including dependents and your joint eligibilityincome. You must fill in the Married and Filing Separate ovalin Part A of each PA Schedule SP. You must each submit a copyof the PA Schedule SP with your PA tax return.
Part A. Filing Status
Fill in the oval that describes your status as of Dec. 31, 2013.
Unmarried means single, widowed and could not or did not elect to file a joint return in the year of death of the taxpayerand/or spouse, or divorced on Dec. 31, 2013.
- Separated and living apart at all times during the last six months of 2013; or
- Separated pursuant to a written separation agreement.
- Married and lived together; or
- Separated and lived apart, but for less than the last six months of 2013; or
- Separated, but not by a written separation agreement; or
- Elected to file a joint return in the year of death with a deceased taxpayer and/or spouse.
Also, fill in the correct oval for your specific filing condition.
When claiming Tax Forgiveness together, one of you must meet the eligibility requirements, but you must use your Joint Eligibility Income and Eligibility Income Table 2.
When filing separately, the taxpayer and spouse must combine their eligibility incomes to determine if they meet the eligibility requirements. A married taxpayer cannot claim Tax Forgiveness independently of his or her spouse. Married claimants are not dependents of one another for Tax Forgiveness purposes, even when one spouse does not have any Eligibility Income. You each must use your Joint Eligibility Income and Eligibility Income Table 2, and fill in the oval and certify that you are using the same information for PA Schedule SP.
When one spouse is claimed as a dependent on another person's federal income tax return, otherwise qualifying married taxpayers must file separately. EXAMPLE: Scott is a dependent on his parents' federal income tax return and is not eligible for Tax Forgiveness. His wife, Paula, is not a dependent, and may complete PA Schedule SP. Paula may not claim Scott as a dependent, but must include his Eligibility Income when calculating her Total Eligibility Income. Additionally, if Scott's parents qualify for Tax Forgiveness, Scott may also qualify if he included Paula's income in his Total Eligibility Income.
Deceased means you are filing for a person who died during 2013 and/or the deceased person's surviving spouse or deceased spouse could not or did not elect to file a joint return with the deceased taxpayer. Annualization of a deceased taxpayer and/or spouse's income may be required in order to determine total eligibility income for Tax Forgiveness purposes.
Annualization of Income:
In order to annualize a taxpayer's income, you may use the income realized by the decedent, divided by the number of days or months the taxpayer lived and multiplied by 365 days or 12 months. Subtract from that product the amount of realized income and include the remainder in the amount reported on Line 2 of Part C for PA Schedule SP. One time transactions, such as those from the sale of stock or real property, need not be included when determining the amount of the daily or monthly income for a decedent.
When determining the amount of annualized income, you may also base the total eligibility income on the prior year's return if the individual was eligible for Tax Forgiveness, received approximately the same income during this taxable year and did not have any transactions that were different from the previous tax year. The department will usually accept a reasonable calculation of the decedent's annual Eligibility Income
EXAMPLES: Jerry and Pat have been married for 50 years andJerry dies on October 1 of the most recent tax year. Pat electsto file a joint return with her deceased husband. Jerry worked asa custodian for a local school to supplement their social securityincome and was still employed there when he died. Jerry andPat also had joint interest and dividend income during the taxyear. Jerry's compensation income must be annualized and theamount he might have earned for the remaining three monthsof the tax year must be included on Line 2 in Part C of PASchedule SP. Because Pat elected to file a joint return with herdeceased husband, the interest and dividend income from the joint ownership of the assets are not required to be annualized.
Jay and Liz are retired and have interest, dividends and gainsfrom the sale of stocks and bonds that they report every tax yearfrom cds, bank accounts and stocks and bonds they eachhold/own separately. Liz dies on May 1 of the most recent taxyear and the executor of her estate does not elect to file a jointreturn with her surviving spouse. Jay is not required to annualizethe income he earned during the tax year, but Liz's executormust annualize her Income. The interest and dividend income she earns must be annualized by the executor to report theincome that may have been earned during the remaining eightmonths of the tax year in order to determine her eligibilityincome for Schedule SP purposes. The executor is not requiredto annualize any capital gains reported during the period ofJanuary 1st to May 1st.
Bob and Peggy are retired and all the income they have is fromjointly owned property. Peggy dies on August 15 and the administrator of her estate does not elect to file a joint return with hersurviving husband. Bob must report on his tax return one halfof all the income earned by the couple through the date ofPeggy's death and then reports the full amount of the incomefrom the jointly owned property thereafter. Peggy's administratormust report one half of the joint income through the date of herdeath and must annualize her income to determine the amount of annualized income to include for the remaining four-and-ahalf months of the tax year on PA Schedule SP, Part C, Line 2to determine if she is eligible for Tax Forgiveness.
Bud and Mary have filed joint tax returns for the three years theyhave been married. During January of the most recent tax year, Bud is diagnosed with a terminal illness and he retires from hisposition as a truck driver in February of that year after four yearsof service and he elects to take his retirement pay in a lump sumdistribution. Bud and Mary also have dividend and interestincome from joint ownership of their assets and accounts of$300. Bud dies on July 31 of the most recent tax year withoutany life insurance. Mary elects to file a joint return the followingspring and include her deceased husband's income of $3,500along with her modest wages of $8,000. Bud's compensationshould not be annualized because he was retired from service prior to his death. The interest and dividend income are also notrequired to be annualized as Mary elected to file a joint returnwith her deceased husband.
Tony is a single taxpayer who owns his own business which reports its income on a Schedule C and a rental property wherethe income is reported on Schedule E. Tony is involved in anautomobile accident and dies on June 30 of the most recent tax year. Tony's brother is the executor of his estate and files thefinal tax return for his brother, his business and his rental property. Tony's brother must annualize his brother's businessincome and rental income in order to determine if he is eligiblefor Tax Forgiveness. Tony's brother must include the income he realized through the date of death plus the annualized income for another six months from both the business and rental properties.
IMPORTANT: Surviving spouses should not include any income in respect of a decedent, income that should be included on the estate tax return, or any income of the deceased taxpayer (including the decedent's half of any joint income received prior to the decedent's date of death) in the taxable income or in the calculation of the eligibility income of the surviving spouse when a separate return is filed by the surviving spouse.
A full-time student who is a dependent on his/her parents' federal income tax return cannot claim this credit, regardless of his/her income, unless his/her parents are eligible for Tax Forgiveness. In this case, the student claimant must file his/her own tax return and PA Schedule SP.
Nonresidents and Part-Year Residents:
Taxpayers who are nonresidents and part-year residents of Pennsylvania may claim Tax Forgiveness if meeting all the eligibility requirements. Such taxpayers must include in their eligibility income all income as described whether earned within or outside Pennsylvania. Nonresident and part-year resident taxpayers who file paper copies of the PA-40 must also include a copy of page one of their federal income tax return along with their completed PA Schedule SP.
CAUTION: If you are a resident of a reciprocal state and have PA-taxable income in classes other than compensation (see also Resident of a Reciprocal State Filing for a Refund on Page 10), you must include all your nontaxable income (including the compensation not taxable to Pennsylvania as a resident of a reciprocal state) earned outside Pennsylvania on Line 6 of PA Schedule SP.
Part B. Dependent Children
A dependent is a minor or adult child claimed as a dependent on a 2013 federal income tax return.
The Department of Revenue has a two-step test for a dependent child:
- Is the individual a child of the claimant? For PA income tax purposes, child includes the natural child, adopted child, or step-child of a parent. Child also includes a grandchild of a grandparent and a foster child of a foster parent. Therefore, you can claim a son or daughter, a grandchild, or a foster child as a dependent for PA Schedule SP if you can claim the child as a dependent on your federal income tax return. However, an aunt, uncle, or unrelated person cannot claim a child as a dependent, as defined above, even if claiming the child as a dependent on a federal income tax return.
- Can the claimant claim the child as a dependent forfederal tax purposes? The age, status as a full-time student, and gross income of a daughter, son, granddaughter, grandson, or foster child are factors only in determining whether the claimant can claim the child as a dependent for federal purposes. For example, parents that can claim a qualifying 30-yearold child for federal purposes can claim that child as a dependent for PA Schedule SP purposes.
You cannot claim a dependent child on PA Schedule SP if:
- The dependent is not your child, as defined above;
- You cannot claim the child on your federal tax return;
- You are unmarried for Tax Forgiveness purposes, and your former spouse by agreement or court decree can claim your child as a dependent for federal and PA Schedule SP purposes; or
- Your child's other parent, by agreement or court decree, can claim your child as a dependent for federal tax and PA Tax Forgiveness purposes.
You cannot claim any other adult as a dependent, even if
doing so on a federal tax return. A dependent child with taxable income in excess of $33 must file a PA tax return. If that child's parents qualify for Tax Forgiveness, that child is also eligible for this credit. The child must file a tax return and a PA Schedule SP. The child must also include any child support paid to his/her parent in his/her Eligibility Income.
Complete Lines 1 and 2.
- Provide all the requested information for each child.
- Enter the number of dependent children you are claiming.
FILING TIP: If you do not have any dependents, go to Part C. CAUTION: If claiming an adult child, an adopted child, a foster child, or a child with a different last name than yours, you must include a copy of page one of your 2013 federal income tax return.
Part C. Eligibility Income
Use Column A if unmarried or married filing jointly. Use the columns under Column B and C if married filing separately.
PA Taxable Income.
Enter your total PA Taxable Income amount from Line 9 of your PA-40 form.
Nontaxable Income. On Lines 2 through 10, you must include income that you do not report as taxable on your PA return, but PA law requires you to report for Tax Forgiveness purposes. If you do not have an amount to report on Lines 2 through 10, enter zero. Annualized income from each of the sources for Lines 2 through 10 should also be reported for decedents on the respective lines.
- Nontaxable interest, dividends, and gains and/orannualized income. Include income and gains from investments in direct obligations of the federal government, Pennsylvania, and political subdivisions of Pennsylvania. Include the nontaxable portion of gain from the sale of any property. Include nontaxable income received as a beneficiary of an estate or trust. For decedents only: in addition to any annualized income for nontaxable interest, dividends, and gains, include the difference between the total annualized taxable income and the PA-taxable income from Line 1 above.
- Alimony. Enter the amount of federally taxable alimony that you receive.
- Insurance proceeds and inheritances. This amount includes the total proceeds received from life or other insurance policies. Also, include inherited cash or the value of property received as well as the amount received as reported on federal Form 1099-R with distribution code 4 reported in Box 7 of the form.