Do You Pay State Taxes on Unemployment in Pennsylvania?

Income taxes are taxes that a taxing authority assesses on income. When you receive unemployment benefits, you are collecting income. Although the federal government considers unemployment benefits to be taxable, some states, including Pennsylvania, do not tax unemployment benefits.

Unemployment benefits are benefits you receive from your state's unemployment agency when you lose your job. The qualifications to receive unemployment vary from state to state, but generally you can obtain unemployment benefits if you left your job involuntarily but were not terminated for cause. Your state pays your benefits either weekly or every two weeks, and either by check or by direct deposit, depending on state law and procedures.

You must pay federal income taxes on your unemployment benefits. You can choose to save a portion of your benefits to pay the IRS in quarterly payments or when you file your taxes, or you can choose to have federal taxes deducted automatically from your unemployment benefits. You can contact your state's unemployment agency to find out how to have the agency automatically deduct your federal taxes.

The commonwealth of Pennsylvania assesses taxes on earned income, just like the federal government does. Earned income includes wages, salaries, commissions, tips, bonuses, back pay, vacation pay, severance pay and even jury and witness fees. Pennsylvania does tax some income that the federal government does not tax, but also does not tax some income that the federal government does tax.

Pennsylvania does not tax unemployment compensation as income. If you live in Pennsylvania and are receiving unemployment benefits from the state of Pennsylvania, you will only be liable for federal income taxes on the benefits and not state income taxes.