Delinquent Earned Income Tax Notices

Taxpayers often ask why they received a delinquent local earned income tax notice and how Keystone identifies delinquent taxpayers. The information below will help you understand the delinquent identification process and assist with responding to delinquent local earned income tax notices.

To help standardize local earned income and net profits reporting, the Pennsylvania Legislature passed Act 166 of 2002. This Act changed the definitions of “earned income” and “net profits” for local earned income tax purposes to adopt, with certain exceptions, the definitions of “compensation” and “net profits” for state level Personal Income Tax purposes. That is, unless explicitly stated otherwise, taxable earned income and net profits reported locally must match the taxable compensation and net profits reported on a taxpayer’s PA-40. Exceptions to this rule include active-duty military pay, clergy housing allowance, offsets for business losses and subchapter S and other passive net profits.  

Pennsylvania law requires the exchange of information between the Department of Revenue and Tax Officers such as Keystone. As such, Keystone identifies delinquent taxpayers by analyzing limited earnings information provided by the Pennsylvania Department of Revenue to determine if the local and state taxable earnings match. If a discrepancy is identified, Keystone issues a delinquent notice to the taxpayer. This limited earnings information is received approximately 15 months after the tax filing deadline resulting in an unavoidable delay in generating and issuing delinquent notices.

If a taxpayer receives a delinquent earned income tax notice but believes they do not owe some or all of the tax because of unapplied tax credits, unreported tax withholdings or other extenuating circumstances, supporting documentation to substantiate the claim must be provided to Keystone. Taxpayers can quickly and easily submit the required documents using Keystone’s e-Pay. Review the document upload process to get started.

If you believe the delinquent notice was sent in error, contact us. Our team of taxpayer services agents are available to help you determine if you have a valid reason for the discrepancy and can answer your questions to help you through this process.

Access our delinquent earned income tax FAQs to find answers to additional questions.