61 Pa. Code § 2.5

Current through Register Vol. 54, No. 45, November 9, 2024

Section 2.5 - Total limit of credit against tax

An employer may not use EIP credits exceeding 90% of its tax liability in a given year; however, excess EIP credits may be applied to any of the 3 immediate succeeding years if total EIP credits applied in a year do not exceed 90% of its tax liability for that year. For the purposes of this section, "tax liability" is defined as the tax liability less credits not prepaid in the form of withholding, estimated or tentative tax prepayments.

For example:

(1) On July 15, 19X0, John Taxpayer hires Employe at $3.35 an hour. Total wages paid until December 31, 19X0 amount to $3,334. On April 15, 19X1 Taxpayer files his personal income tax and his (line 12) income tax liability is $1,200. He has no other credits to offset against this liability. To calculate the actual credit to be taken, the taxpayer must first prorate the maximum annual wage allowance for the partial year. To accomplish this, he takes the proration factor (in this case 5/12, based on 5 full months of employment) and multiplies it times the maximum annual wage allowance ($6,000). Accordingly, the taxpayer's maximum annual wage allowance for credit purposes would be $2,500. Therefore, the taxpayer's actual credit would be $2,500 x 30% or $750 (since $750 does not exceed 90% of his tax liability).

During the second taxable year, the employe was paid $3,634 in wages from January 1, 19X1 to July 14, 19X1 and $4,000 in wages from July 15, 19X1 to December 31, 19X1. The taxpayer's EIP credit for 19X1 is $1,550, computed as follows:

Remaining maximum first year qualifiedwages ($3,500) x 30%=	$1,050
Total qualified second year wages proratedas above ($2,500) x 20%=	$ 500
Total	$1,550

On April 15, 19X2, the Taxpayer's (line 12) personal income tax liability is $1,020. In addition, the taxpayer has an out-of-State credit of $770. To arrive at the Taxpayer's actual tax credit, the Taxpayer would subtract the out-of-State credit ($770) from his tax liability ($1,020), resulting in a tax liability of $250. The credit which may be taken would then be $225 ($250 x 90%). The Taxpayer may carry over the remainder of this credit ($1,550-$225 or $1,325) and use it in any of the 3 subsequent years.

(2) Taxpayer Corporation has an EIP credit of $1,800. Taxpayer's page 1 Schedule Line 6 or 14 corporation net income tax is $2,500 and it has a Neighborhood Assistance Credit of $1,000. Therefore, Taxpayer Corporation has an EIP credit of $1,350. ($2,500-$1,000= $1,500 x 90%). The corporation may carry over the remainder of its credit ($1,800-$1,350 or $450) and use it in any of the 3 subsequent years.

61 Pa. Code § 2.5

The provisions of this §2.5 adopted July 16, 1982, effective 7/17/1982, 12 Pa.B. 2292.