Is credit for income tax paid to another state applied differently depending upon the tax year when the income was earned?

Yes. Prior to tax year 2018, credit for income tax paid out of state was limited to the “base” tax rate as defined under Chapter 3 of the Local Tax Enabling Act (Act 32). Add-on taxes over and above the base tax rate – such as tax for the Acquisition of Open Space (Act 153) or for the elimination of an Occupation Assessment Tax (Act 24 and 130) – are not subject to credit for income tax paid out of state for tax years prior to 2018.

The law on tax crediting changed in 2018.

PA Act 18 of 2018 allowed credit for income tax paid to another state to be applicable to both the base tax as well as to the add-on for the Acquisition of Open Space and the elimination of an Occupation Assessment Tax. The new Act 18 crediting rule is applicable to tax years 2018 and forward.

The charts below illustrate the tax credit change in 2018:

Tax Years 2017 and priorTax Years 2018 and forward
Earned Income ———————— $50,000.00Earned Income ———————— $50,000.00
Base tax rate ————————– 1.0%Base tax rate ————————– 1.0%
Open Space Tax ———————- 0.25%Open Space Tax ———————- 0.25%
Elimination of Occupation Tax —– 0.15%Elimination of Occupation Tax —– 0.15%
Total tax liability ———————– $700.00Total tax liability ———————– $700.00
$50,000 x 1.4% (base + Open Space + Occ)$50,000 x 1.4% (base + Open Space + Occ)
Available credit limit —————— $500.00Available credit limit —————— $700.00
$50,000 x 1% (combined base tax rate)$50,000 x 1.4% (base + Open Space + Occ)