Pennsylvania LLC Taxes

How Is an LLC Taxed in Pennsylvania?

Taxation in Pennsylvania isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Pennsylvania to help you ensure your LLC navigates them effectively.

Pennsylvania Local Taxes

Below, we have prepared a detailed overview of the local taxes that your LLC might encounter.

Local Option Sales Taxes

In Pennsylvania, LLCs will need to pay sales tax at a local level in addition to the state’s 6% Sales and Use Tax. Depending on the county, local sales tax can increase this to an additional 2%, potentially bringing the total Pennsylvania sales tax rate to as much as 8%.

Note: To find the sales and use tax rate that’s in effect in your area, use the Pennsylvania Revenue Services website or consult with a local tax professional. 

Local Earned Income Tax (EIT)

In Pennsylvania, LLCs will need to account for the Local Earned Income Tax (EIT) in addition to the Pennsylvania state income tax rate. EIT is typically levied at a rate of 0.5% on earned income in municipalities, though it can vary between 0.9% and 1.5% in school districts, depending on where your LLC is based.

Note: School districts are not permitted to increase the EIT or reinstate an occupational tax. 

Local Services Tax (LST)

The Local Services Tax (LST) allows municipalities and school districts to impose a tax, capped at $52 per year, on individuals working within their jurisdiction. For LLCs, this translates to the responsibility of withholding the LST from their employees’ paychecks.  

Note: The LST limit of $52 applies per employee annually, irrespective of how many jurisdictions they work in during the year.

Property Taxes

Local property taxes for LLCs owning real estate in Pennsylvania are set by each county and municipality, leading to varying rates. These taxes are calculated based on the property’s assessed value — determined by local tax assessors. 

For example, in Philadelphia, the Real Estate Tax rate in 2022 was a combination of a city tax at 0.6317% and a school district tax at 0.7681%, cumulatively amounting to a rate of 1.3998%.

Note: Keep in mind that assistance with Property Tax/Rent Rebate applications is provided without charge through the Department of Revenue’s district offices.  

Hotel Tax 

Local hotel taxes in Pennsylvania differ by jurisdiction, typically ranging from 2% to 8.5%. These are in addition to the state’s hotel occupancy tax of 6%. While the state tax is consistent across Pennsylvania, local tax rates are set by individual counties or cities, impacting the overall tax rate on lodging services. This variation means the total tax on hotel accommodations can significantly vary, depending on the location within the state.

Note: For more information on local hotel occupancy taxes, take a look at this County Hotel Tax Rates and Contact Information guide.

Pennsylvania State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Pennsylvania. 

Personal Income Tax

Pennsylvania income tax is applied at a personal rate of 3.07% to individual incomes (e.g., LLCs opting for pass-through taxation, etc.). 

Under this structure, an LLC’s profits bypass corporate income tax and are instead distributed directly to the members. The members then pay income taxes on their share of these profits, aligning with the state’s uniform tax rate.

Net Income Tax

Corporations and LLCs that have not elected pass-through taxation are subject to corporate net income tax. This tax is calculated on the business’s net taxable income, which is its gross income minus allowable deductions and exemptions. The current corporate net income tax rate is 8.99%.

Note:​ The net income tax rate is projected to decrease to 8.49% starting January 1, 2024.

Pennsylvania Sales and Use Tax

Pennsylvania imposes a 6% sales and use tax on all goods and services sold or used within the state, including those purchased out-of-state but used in Pennsylvania. LLCs engaged in selling goods or services in the state are responsible for collecting this tax from customers. They must also remit the collected tax to the Pennsylvania Department of Revenue, typically on a quarterly basis. 

Pennsylvania Hotel Accommodations Tax

In Pennsylvania, a 6% hotel tax is levied on hotel room rentals, with the responsibility for collection falling on hotel operators. This state tax is often supplemented by additional local hotel taxes imposed by various municipalities – such as Philadelphia, where an extra 8.5% hotel tax is added – illustrating the variation in total tax rates that guests may encounter in different parts of the state.

Vehicle Rental Tax (VRT)

LLCs that rent or lease motor vehicles are also subject to a 2% Vehicle Rental Tax (VRT). This tax is imposed on the purchase price, as calculated for Sales Tax purposes, of each rental contract for a period of 29 consecutive days or less. The VRT is separate from (and in addition to) any applicable state or local Sales Tax or the $2 daily PTA fee.

Public Transportation Assistance (PTA) Tax

In addition to the taxes mentioned earlier, LLCs that engage in the rental or leasing of motor vehicles are subject to the Public Transportation Assistance (PTA) Fund Taxes and Fees. These taxes include a $1 fee on the sale of each new tire for highway use, a $2 fee on each rental day or part thereof for motor vehicle rentals, and a 3% tax on the total lease payment for motor vehicle leases, including down payments and accelerated lease payments.  

Note: LLCs that operate car-sharing services are subject to a prorated partial-day fee based on the rental interval.  

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your personal income tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Pennsylvania

Below, we’ve outlined the general process an LLC in Pennsylvania will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you’ve gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it’s a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: To file your state taxes in Pennsylvania, utilize the Pennsylvania Department of Revenue’s myPATH system.
• Local Tax Returns: The process for filing local taxes in Pennsylvania varies depending on the municipality, so make sure to check The Pennsylvania Municipal League’s website for more information on filing your local taxes.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Pennsylvania LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Pennsylvania LLC Annual Report

Pennsylvania LLCs are currently required to file a decennial report with the Department of State. 

Having said that, starting from 2025, this requirement will change, as Pennsylvania is introducing an annual report requirement for LLCs instead. The new annual report will come with a $7 filing fee and must be submitted every year, ensuring ongoing compliance with state regulations.  

For more information on the new reporting requirements, visit the Bureau of Corporations and Charitable Organizations. 

Licensure and Tax Requirements

In Pennsylvania, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: LLCs in Pennsylvania engaging in the sale of goods or provision of taxable services are required to obtain a Sales Tax License. This process is now streamlined through myPATH, the new online portal introduced by the Pennsylvania Department of Revenue, replacing the older e-TIDES system. 
• Professional Licenses: LLCs in regulated sectors must obtain relevant professional licenses. For example, healthcare businesses may need licenses from either the Pennsylvania Board of Medicine or the Board of Nursing, while legal firms are required to be licensed by the Pennsylvania State Bar Association.
• Environmental Permits: For operations that could impact the environment, such as manufacturing or waste disposal, LLCs in Pennsylvania are required to secure environmental permits. These are usually issued by the Pennsylvania Department of Environmental Protection, ensuring regulatory compliance in environmental matters.

Note: A comprehensive list of common state permits and licenses required for businesses to operate legally in Pennsylvania can be found in the Licensing Help Guide at the Pennsylvania One Stop Shop.