What are the local earned income tax (Act 32) implications of an early distribution from retirement funds?

by PICPA Staff | May 10, 2018
askacpaiconA client received a notice from Berkheimer comparing earnings reported to them versus earnings reported to Pennsylvania. The amount of the discrepancy resulted from Form 1099-R for an early distribution from retirement funds less the taxpayer's basis. The Berkheimer representative said they are following Act 32 in determining the taxability of this income. Can you provide guidance on this matter? The difference represents interest, dividends, and gains on the taxpayer's contribution to the retirement account, which are unearned income and shouldn't be taxable to Berkheimer. Berkheimer didn't send documentation to support their claim about following Act 32 as I requested. Thanks for any help that can be provided.

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This question was answered by PICPA staff.

***Answer originally published Sept. 9, 2015.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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