An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in personal income tax, providing for exemption from tax for early withdrawal from certain accounts.

2025-2026 Regular Session Introduced by Amanda Cappelletti and 10 co-sponsors

Pennsylvania would exempt early withdrawals from certain retirement accounts from state personal income tax, aligning with federal treatment.

Referred to Finance

Purpose and Intent

The bill seeks to align Pennsylvania tax treatment with federal policy by exempting early withdrawals from specific retirement accounts from Pennsylvania personal income tax.

The sponsor language states the General Assembly’s finding that the Commonwealth should exclude certain retirement account withdrawals from taxation to mirror federal government tax treatment.

Key Provisions

Adds a new Section 304.3 to the Tax Reform Code of 1971 (35 Pa.C.S. § 304.3).

The core provision creates an exemption from Pennsylvania personal income tax for early withdrawals from specified retirement accounts.

Section outlines the rationale: federal exclusion of those withdrawals should be mirrored at the state level.

Note: The text provided is partial. The bill introduces the concept of an exemption but does not include detailed definitions, criteria for which accounts qualify, the exact withdrawal thresholds, or the precise scope of “early withdrawals.” The accompanying language appears to reference alignment with federal treatment but does not include the complete mechanics (e.g., account types, age or hardship requirements, penalties, or recapture rules) in the excerpt.

Who Is Affected

Individual taxpayers who take early withdrawals from qualifying retirement accounts.

Taxpayers currently subject to Pennsylvania personal income tax on such withdrawals, who would become exempt under the new provision.

Administrative bodies: Pennsylvania Department of Revenue would administer and enforce the exemption, consistent with existing tax administration.

Procedural and Timeline Aspects

Introduced and referred to the Senate Finance Committee on April 23, 2026.

Sponsorship: A broad group of Senate members, including co-sponsors Joe Picozzi, Vincent Hughes, Amanda Cappelletti, Elder Vogel, Steve Santarsiero, Wayne Fontana, Nick Pisciottano, Tracy Pennycuick, Art Haywood, and Jay Costa.

At this stage, the bill has only been referred for committee consideration; no further amendments or floor actions are documented in the provided text.

Practical Impact (Potential)

Taxpayers could see a reduction in Pennsylvania personal income tax liability on certain early retirement withdrawals if the exemption is approved and properly defined.

State revenue impact would depend on the scope of qualified withdrawals and the number of filers benefitting; the bill’s fiscal effect is not provided in the excerpt.

Businesses and retirement plan administrators may need to adjust payroll/tax withholding processes if the exemption alters how withdrawals are treated for PA tax purposes.

Notes and Considerations

The current text is incomplete regarding the precise eligibility criteria (account types, ages, hardship provisions, and any limits).

A full analysis will require the bill’s complete statutory language, including definitions, cross-references, and any regulatory guidance anticipated from the Department of Revenue.

Stakeholders may want to watch for amendments clarifying the exemption’s scope and any interaction with federal rules on qualified withdrawals (e.g., 10/59/Reached for IRAs, 403(b)s, or other retirement vehicles).

Bill