§ 101.1. Definitions.
The following words and terms, when used in this article, have the following meanings, unless the context clearly indicates otherwise:
Accepted accounting principles and practices—Those accounting principles, systems or practices which are acceptable by standards of the accounting profession and which are not inconsistent with the regulations of the Department setting forth those principles and practices.
Association—An unincorporated society; a body of persons united and acting together without articles of incorporation but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprise. The common enterprise shall be the conduct of a business, trade or profession or the view to ultimate enhancement in value of the property of the association which is either to be returned to the members or sold and the profits returned to the members. The term does not include associations that are purely charitable or religious organizations, recreational or social clubs, and similar agencies.
Business—An enterprise, activity, profession, vocation, trade, joint venture, commerce or other undertaking of any nature if engaged in as a commercial enterprise and conducted for profit or ordinarily conducted for profit, whether by an individual, partnership, association or other unincorporated entity.
Cafeteria plan—A plan qualifying under section 125 of the IRC (26 U.S.C.A. § 125).
Casual employe—An individual who performs, or by agreement, refrains from performing, any service of whatever nature and is not an employe.
Casual employer—A person for whom a casual employe performs, or refrains from performing, any service, provided that, if the person does not make the payment of remuneration, the term also includes the person making payment.
Charitable trust—A trust operated exclusively for religious, charitable, scientific, literary or educational purposes.
Claimant—A person who is subject to the tax imposed under this article, is not a spouse or child who derives more than one-half of their total support from another person.
Department—The Department of Revenue of the Commonwealth.
Dependent—A spouse or child who derives more than one-half of his total support during the entire taxable year from another individual. A spouse means a husband or wife. A child means and includes a natural child, an adopted child, a stepchild and a grandchild. A foster child who during the entire taxable year lives in the claimant’s home shall be considered to be a child. For purposes of determining support, all sources of income are to be considered, whether taxable income or nontaxable income. Conditions of blindness or old age may not be a factor in determining the number of a claimant’s dependents.
Discriminatory plan—A plan that treats highly compensated participants more favorably in coverage, contributions or benefits. In determining whether a cafeteria plan is discriminatory, the special rules of section 125(g) of the IRC apply.
Dividends—A distribution in cash or property made by a corporation, association or business trust out of accumulated earnings and profits, or out of earnings and profits of the year in which the dividend is paid. The term does not include a return of premium.
Domicile—The place which an individual intends to be his permanent home and to which he intends to return whenever he may be absent.
Employe—An individual from whose wages an employer is required under the IRC to withhold Federal Income Tax. For the purpose of this definition, the terms ‘‘employe,’’ ‘‘employer’’ and ‘‘wages’’ have the same meanings as in Chapter 24 of the IRC (26 U.S.C.A. § § 3401—3406), relating to collection of Income Tax at source on wages.
Employe welfare benefit plan—(i) A plan established or maintained to provide to eligible employes or their beneficiaries plan benefits, such as:
(A) Medical, surgical or hospital care or benefits in the event of sickness, accident or disability.
(B) Death benefits.
(C) Scholarships.
(D) Personal expense reimbursements, advancements or allowances such as rental vehicle, dependent care, food or housing allowances.
(ii) The term does not include:
(A) Plans that offer a benefit that defers the receipt of compensation or operate in a manner that enables participants to defer the receipt of compensation.
(B) Plans established or maintained to provide fringe benefits described in § 101.6a (relating to fringe benefits in the form of use of property or services).
Employer—An individual, partnership, association, corporation, governmental body or unit or agency, or any other entity who or that is required under the IRC to withhold Federal Income Tax from wages paid to an employe. For the purpose of this definition, the terms ‘‘employe,’’ ‘‘employer’’ and ‘‘wages’’ have the same meanings as in Chapter 24 of the IRC.
Fiduciary—A guardian, trustee, executor, administrator, receiver, conservator or a person acting in a trust or similar capacity, whether domiciliary or ancillary. This term is intended to be all encompassing and includes any person defined as a fiduciary under any other statute of the Commonwealth. The fact that a person is defined as a fiduciary in one statute and not in another is immaterial for the purpose of this article.
Health, accident or death plan—(i) The term means:
(A) An accident, health or term life insurance policy issued by an insurance company.
(B) A self-insured employe welfare benefit plan under which benefits are payable upon hospitalization, sickness, disability or death or for the prevention of sickness or disability.
(ii) The term does not include a program under which benefits are payable either upon hospitalization, sickness, disability, death or for the prevention of sickness or disability; or upon separation from employment or some other contingency.
Example: Under A’s benefit plan, B qualifies for a lump sum payment equal to 26 weeks’ pay upon proof of permanent disability or separation from employment. The plan does not constitute a health, accident or death plan because program benefits are also payable upon separation from employment. Instead, it constitutes a severance pay plan.
Highly compensated participant—(i) A plan participant who is one of the following:
(A) An officer.
(B) A shareholder owning more than 5% of the voting power or value of all classes of stock of the employer.
(C) An individual who, for the preceding taxable year:
(I) Received compensation from the employer in excess of the Federal limitation (after adjustment by the Secretary of the United States Treasury for inflation) set forth in section 414(q)(1)(B) of the IRC (26 U.S.C.A. § 414(q)(1)(B)).
(II) Is in the group consisting of the top 20% of all full-time employes of the employer with at least 3 years of service when ranked on the basis of compensation paid during the taxable year.
(ii) A partner or other self-employed individual.
(iii) A spouse or dependent of a highly compensated individual.
Income—The total of the classes enumerated under Chapter 103, Subchapter B (relating to the determination of tax) received by a taxpayer directly, or through partnerships, associations or Pennsylvania S corporations and the amount of each class derived by the taxpayer through estates or trusts determined and computed in accordance with the requirements of this article relating to the taxation of a natural individual’s personal income, including the requirements that:(i) There is no setoff between, or among, any different classes of Personal Income Tax income. For example, an individual’s net profit from manufacturing toys is $100, his net loss from the business of selling garden supplies is $20 and his net loss from passive ownership of investment rental properties is $10. His total net business profits are $80 which is his income, against which he may not set off his losses on rentals.
(ii) A deduction is not allowed for expenses, whether paid or incurred for the production or collection of income or for the management, conservation or maintenance of property, except:
(A) Unreimbursed employe business expenses.
(B) Costs of goods sold and expense incurred in the operation of a business.
(C) Costs of acquisition, expenses of sale and collection expenses.
(D) Expenses necessary to the production or collection of rents and royalties or for the management, conservation or maintenance of rents, royalties, patents or copyrights.
(iii) The distributive income of a Pennsylvania S corporation, partnership or other association, trust or estate is classified, determined and computed in the same way and on the same basis as the taxable income of a natural individual; and, in the case of a Pennsylvania S corporation, partnership or other association, each shareholder, partner or member shall take into income the shareholder’s, partner’s or member’s pro rata share of the income or loss in each applicable class of income received by the Pennsylvania S corporation, partnership or other association.
(iv) Married persons may not compute their tax as if they were one person; and no setoff between married persons is permitted. For example, an individual’s net profit from manufacturing toys is $100, his net loss from the business of selling garden supplies is $20, his wife’s loss from a business she operates is $20 and his net loss from passive ownership of investment rental properties is $10. His total net business profits are $80 which is his income, against which he may not set off his wife’s business losses.
Individual—A natural person and includes the members of a partnership or association.
Limited plan of termination—A plan that has one or more of the following attributes:(i) The plan, when begun, is scheduled to be complete on a certain date or upon the occurrence of one or more specified events.
(ii) The number, percentage or class of employees whose services are to be terminated are specified in advance of the employees’ terminations of service.
(iii) The plan is otherwise temporary or limited.
Nonresident estate or trust—An estate or trust which is not a resident estate or trust. In determining whether an estate or trust is a resident estate or trust, reference should be made to definitions of resident estates and resident trust in this section. Charitable trusts and pension or profit sharing trusts are not included within the term nonresident trusts.
Nonresident individual—An individual who is not a resident of this Commonwealth. In determining whether an individual is a resident, reference should be made to the definition of a resident in this section. References to nonresidents are equally applicable to nonresident aliens.
Partnership—An undertaking by two or more persons to place their money, property, labor, skill or all of these in commerce, business or a profession with a view to earning a profit which they shall share. The term includes limited and general partnerships and joint ventures. It shall be immaterial whether the undertaking is limited as to subject, time or any other factor. The term does not include an organization taxed as a corporation under the laws of the Commonwealth.
Permanent place of abode—A dwelling place maintained by the taxpayer, whether or not owned by him. This term generally includes a dwelling place owned or leased by the taxpayer’s spouse. However, a mere camp or cottage, which is used only for vacations, is not a permanent place of abode.
Person—An individual, employer, association, fiduciary, partnership, corporation or other entity, estate or trust, resident or nonresident, and the plural as well as the singular number. For the purpose of determining eligibility for special tax provisions, the term means a natural individual.
Plan—A cafeteria plan or other wage and salary supplemental or replacement program or arrangement established or maintained by an employer or by an employe organization, or by both, for the benefit of eligible employes or their beneficiaries. The term includes temporary or permanent programs or arrangements covering hospitalization, sickness, disability or death, supplemental unemployment benefits, strike benefits, social security or retirement, a trust that forms part of a plan, and a contract of insurance.
Poverty—An economic condition wherein the total amount of poverty income is insufficient to adequately provide the claimant, his spouse and dependent children with the necessities of life.
Poverty income—(i) For the purpose of determining eligibility for special tax provisions, moneys or property, including interest, gains or income derived from obligations which are statutorily free from State or local taxation under any other act of the General Assembly of the Commonwealth or under the laws of the United States, received of whatever nature and from whatever source derived, but not including the following:
(A) Periodic payments for sickness and disability other than regular wages received during a period of sickness or disability.
(B) Disability, retirement or other payments arising under workmen’s compensation acts, occupational disease acts and similar legislation by a government.
(C) Payments commonly recognized as old age or retirement benefits paid to persons retired from service after reaching a specific age or after a stated period of employment.
(D) Payments commonly known as public assistance, or unemployment compensation payments by a governmental agency.
(E) Payments to reimburse actual expenses.
(F) Payments made by employers to labor unions for programs covering hospitalization, sickness, disability or death, supplemental unemployment benefits, strike benefits, social security and retirement.
(ii) Income which must be included, includes, but is not limited to: taxable income; interest received, whether taxable or nontaxable; realized capital gains, whether taxable or nontaxable; child support; alimony; life insurance proceeds; gifts of cash or property; educational stipends; military pay received for services outside of a combat zone; awards or prizes, including lottery winnings; inheritances; and other income not specified as ‘‘Income Not Included.’’
(iii) The following income may not be included: Social Security and Medicare benefits; periodic payments for sickness and disability; workers’ compensation payments; public assistance and relief (welfare); unemployment compensation; reimbursed actual expenses; pensions or annuities, including railroad retirement benefits received by reason of retirement; and military pay received by servicemen for duty in a combat zone.
(iv) In cases where property is jointly owned, any income therefrom shall be divided according to the parties’ respective interest therein and be reported accordingly.
Qualified annuity—An arrangement under which the payee is entitled to equal, or substantially equal, periodic payments, paid at least annually, for any of the following periods:(i) The life of the participant, or, if applicable, the joint lives of the recipient and recipient’s designated beneficiary.
(ii) The life expectancy of the participant, or, if applicable, the joint life expectancies of the recipient and recipient’s designated beneficiary.
(iii) A period of at least 10 years.
Resident estate—The estate of an individual who at the time of his death was a resident individual. The single controlling factor in determining if an estate is a resident estate for purposes of this article shall be whether the decedent was a resident individual at the time of his death. The residence of the fiduciary and the beneficiaries of the estate shall be immaterial.
Resident individual—An individual who is domiciled in this Commonwealth unless he maintains no permanent place of abode in this Commonwealth and does maintain a permanent place of abode elsewhere and spends in the aggregate not more than 30 days of the taxable year in this Commonwealth, or who is not domiciled in this Commonwealth but maintains a permanant place of abode in this Commonwealth and spends in the aggregate more than 183 days of the taxable year in this Commonwealth. An individual may be a resident of this Commonwealth and taxable as a resident even though he would not be deemed a resident for other purposes.
Resident trust—The single controlling factor in determining if a trust is a resident trust for purposes of this article shall be whether the decedent, the person creating the trust or the person transferring the property was a resident individual or person at the time of death, creation of the trust or the transfer of the property. The residence of the fiduciary and the beneficiaries of the trust shall be immaterial. A resident trust shall be one of the following:(i) A trust created by the will of an individual who at the time of his death was a resident individual.
(ii) A trust created by a person who at the time of the creation was a resident.
(iii) A trust consisting in whole or in part of property transferred to the trust by a person who at the time of the transfer was a resident.
Severance pay—A payment made upon separation from employment under:(i) A plan which has both of the following attributes:
(A) Payments are not contingent solely upon an employee’s retirement from service or being the same age as, or older than, the earliest retirement age under a qualifying retirement benefit plan or qualifying retirement income plan sponsored by the employer.
(B) Total payments cannot exceed twice the employee’s annual compensation accruing during the year preceding the employee’s termination.
(ii) A plan under which all payments to any plan participant are completed within 120 months of the participant’s termination.
(iii) A plan under which no benefit is, or only reduced benefits are payable to, or can be taken, assigned, pledged or otherwise charged or dealt with by, any plan participant after the participant reaches normal retirement age or service.
(iv) A plan, including a stock bonus or profit-sharing plan formed by a trust that meets the requirements for qualification described in section 401 of the IRC (26 U.S.C.A. § 401) or employee stock ownership plan, with one or more of the following attributes:
(A) The amount of earnings on contributions (or allocations of contributions or earnings) and the amount of benefits are determined with regard to the current or accumulated profits or losses of the employer.
(B) The employer can contribute only in those years when it has current or accumulated profits.
(C) The employer’s contributions can fluctuate depending on the level of its profits.
(D) The employer’s contributions are made out of current or accumulated profits.
(E) Distributions are paid with respect to stock of a corporation which is held by an employee stock ownership plan.
(v) A plan under which the accrued benefit payable to each vested participant who does not die before the payment starting date is neither paid nor payable in the form of a qualified annuity.
(vi) A limited plan of termination.
Special tax provisions—A refund or forgiveness of all or part of the claimant’s liability under this article.
State—A state or commonwealth of the United States, the District of Columbia, the Commonwealth of Puerto Rico, a territory or possession of the United States, and a foreign country, but not a political subdivision of any of the foregoing.
Supplemental unemployment benefit plan—A plan established or maintained by an employer or by an employee organization, or by both, that has all of the following attributes:(i) No benefit is payable to, or can be taken, assigned, pledged or otherwise charged or dealt with by, any plan participant except upon lay-off or involuntary separation from the employment of the employer (whether or not the separation is temporary) resulting directly from:
(A) A reduction in force.
(B) Plant closing.
(C) Change in organizational structure.
(D) Discontinuance of an operation.
(E) The participant’s failure to meet or maintain standards of performance for the position due to inability to carry out the responsibilities of the position, health, obsolescence, failure to meet the changed responsibilities of the position or similar circumstance beyond the control of the participant.
(ii) No benefit is payable to, or can be taken, assigned, pledged or otherwise charged or dealt with by, any plan participant if the participant either:
(A) Voluntarily separates from service.
(B) Is separated or discharged from service for any of the following reasons:
(I) Refusal to accept another position with reasonably comparable compensation.
(II) The commission of illegal acts.
(III) Insubordination, failure or refusal to comply with rules or regulations or similar acts within the control of the participant.
(iii) Employer payments to provide benefits are paid to an independently controlled trust or pooled fund established or maintained for the purpose of funding or providing benefits under the plan.
Tax—Interest, penalties and additions to tax, and tax which is withheld under this article by an employer on compensation paid.
Taxable year—When the taxpayer or a claimant is required to file a Federal income tax return under the Internal Revenue Code of 1954, as amended, taxable year means the taxable period for which the return is required. Where the taxpayer is not required to or does not file a Federal income tax return, taxable year means the calendar year. Notwithstanding the foregoing for the first taxable period after the imposition of this tax, taxable year means the period beginning June 1, 1971, and ending with the last day of the taxable period for which the taxpayer files a Federal income tax return under the Internal Revenue Code of 1954, as amended, or December 31, 1971, if he is not required to or does not file a Federal income tax return.
Taxpayer—An individual, estate or trust subject to the tax imposed by this article; a partnership having a partner who is a taxpayer under this article; and an employer required to withhold tax on compensation paid.
Wage or salary supplement—(i) Employer-provided coverage under a plan.
(ii) Separation pay, vacation pay, holiday pay, guaranteed pay, reimbursement for personal expenses, an employer payment to provide benefits under a plan and any other amount paid, under an agreement, to one or more of the following:
(A) An independently controlled trust or pooled fund established or maintained for the purpose of funding or providing benefits under the plan.
(B) An insurance company for the purchase of insurance.
(C) A third party for the benefit of the employe.
(iii) Any benefit under a plan to the extent attributable to plan coverage or contributions by the employer which were not includible in income of the employe.
(iv) Any benefit under a plan which is directly paid by the employer.
Authority The provisions of this § 101.1 amended under section 354 of the Tax Reform Code of 1971 (72 P. S. § 7354).
Source The provisions of this § 101.1 amended through June 12, 1975, effective June 13, 1975, 5 Pa.B. 1561; amended December 10, 1999, effective December 11, 1999, 29 Pa.B. 6249; amended August 4, 2000, effective August 5, 2000, 30 Pa.B. 3938; amended January 11, 2002, effective January 12, 2002, 32 Pa.B. 250, 253. Immediately preceding text appears at serial pages (268447) to (268454).
Cross References This section cited in 61 Pa. Code § 123.3 (relating to taxability under special provisions).
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