A taxpayer, who worked in Pennsylvania, retired in October 2015 and returned to his home state of New York. He received severance pay from his Pennsylvania employer. Is this included as earned income, and is it taxable to Pennsylvania? Can you provide a reference document for this specific type of income?
Answer: Generally, severance payments received for services that were performed in Pennsylvania would be taxable to Pennsylvania, even if one is no longer a Pennsylvania resident. This can be found on www.revenue.pa.gov
under the FAQs, as well as in Chapter 7 of the Pennsylvania Personal Income Tax (PIT) Guide (page 70)
There are a few exceptions depending on how the severance payment is defined. If the severance is tied into an old age retirement plan, then there may be an exclusion. See Chapter 7 of the PIT Guide, Section XVI, for a discussion that goes into great detail on how this income may be excluded.
Answered by: Carlo R. Ferri, CPA, director - tax strategies at Kreischer Miller in Horsham.