PRINTER'S NO. 869
No. 769 Session of 1997
INTRODUCED BY COLAFELLA, E. Z. TAYLOR, KENNEY, GRUITZA, MIHALICH, HORSEY, BARRAR, THOMAS, MAITLAND, COLAIZZO, GEORGE, MELIO, VANCE, MUNDY, ZUG, SAINATO, SATHER, SHANER, REBER, MANDERINO, BROWN, VAN HORNE, PESCI, MARKOSEK, FAIRCHILD, ROONEY, COY, DALEY, WALKO, TRAVAGLIO, MAYERNIK, LAUGHLIN, McCALL, COWELL, OLASZ, LaGROTTA, YOUNGBLOOD, JOSEPHS, BAKER, RUBLEY, BUNT, HERMAN, CORPORA, J. TAYLOR, STEELMAN, LUCYK, SEMMEL, FEESE, GIGLIOTTI, CURRY, MASLAND, BATTISTO, CLYMER, TRELLO, LYNCH, RAMOS, MICHLOVIC, PISTELLA, LEDERER, BOSCOLA, BELFANTI, FICHTER, BELARDI, ITKIN, JAMES, PETTIT, DeLUCA AND SCHRODER, MARCH 12, 1997
REFERRED TO COMMITTEE ON FINANCE, MARCH 12, 1997
AN ACT 1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An 2 act relating to tax reform and State taxation by codifying 3 and enumerating certain subjects of taxation and imposing 4 taxes thereon; providing procedures for the payment, 5 collection, administration and enforcement thereof; providing 6 for tax credits in certain cases; conferring powers and 7 imposing duties upon the Department of Revenue, certain 8 employers, fiduciaries, individuals, persons, corporations 9 and other entities; prescribing crimes, offenses and 10 penalties," further providing for the imposition of personal 11 income tax on certain old-age or retirement benefits. 12 The General Assembly of the Commonwealth of Pennsylvania 13 hereby enacts as follows: 14 Section 1. Section 301(d) of the act of March 4, 1971 15 (P.L.6, No.2), known as the Tax Reform Code of 1971, amended 16 June 30, 1995 (P.L.139, No.21), is amended and the section is 17 amended by adding a clause to read: 18 Section 301. Definitions.--The following words, terms and
1 phrases when used in this article shall have the meaning 2 ascribed to them in this section except where the context 3 clearly indicates a different meaning. Any reference in this 4 article to the Internal Revenue Code shall include the Internal 5 Revenue Code of 1954, as amended to the date on which this 6 article is effective: 7 * * * 8 (d) "Compensation" means and shall include salaries, wages, 9 commissions, bonuses and incentive payments whether based on 10 profits or otherwise, fees, tips and similar remuneration 11 received for services rendered, whether directly or through an 12 agent, and whether in cash or in property. 13 The term "compensation" shall not mean or include: (i) 14 periodic payments for sickness and disability other than regular 15 wages received during a period of sickness or disability; or 16 (ii) disability, retirement or other payments arising under 17 workmen's compensation acts, occupational disease acts and 18 similar legislation by any government; or [(iii) payments 19 commonly recognized as old age or retirement benefits paid to 20 persons retired from service after reaching a specific age or 21 after a stated period of employment; or] (iv) payments commonly 22 known as public assistance, or unemployment compensation 23 payments by any governmental agency; or (v) payments to 24 reimburse actual expenses; or (vi) payments made by employers or 25 labor unions for programs covering hospitalization, sickness, 26 disability or death, supplemental unemployment benefits, strike 27 benefits, social security and retirement; or (vii) any 28 compensation received by United States servicemen serving in a 29 combat zone; or (viii) payments received by a foster parent for 30 in-home care of foster children from an agency of the 19970H0769B0869 - 2 -
1 Commonwealth or a political subdivision thereof or an 2 organization exempt from Federal tax under section 501(c)(3) of 3 the Internal Revenue Code of 1954 which is licensed by the 4 Commonwealth or a political subdivision thereof as a placement 5 agency. 6 * * * 7 (x) "Old age or retirement benefit plan" means and includes: 8 (i) any federally deferred payment program authorized under 9 Subtitle A, Chapter I, Subchapter D, Parts I and II of the 10 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 11 et seq.), including any pension plan, profit sharing plan, stock 12 bonus plan, money purchase plan or Federal Employee's Thrift 13 Savings Plan; (ii) Internal Revenue Code of 1986 section 401(k) 14 plan; (iii) Internal Revenue Code of 1986 section 403(b) plan; 15 (iv) simplified employe pension plan; (v) Keogh plan; or (vi) 16 any other old age or retirement benefit plan. 17 Section 2. Section 303(a) of the act is amended by adding a 18 clause to read: 19 Section 303. Classes of Income.--(a) The classes of income 20 referred to above are as follows: 21 * * * 22 (9) Old age or retirement benefit plans to be taxed as 23 provided in section 304.1. 24 * * * 25 Section 3. The act is amended by adding a section to read: 26 Section 304.1. Taxability of Old Age or Retirement Benefit 27 Plans.--(a) Contributions to old age or retirement benefit 28 plans shall be subject to taxation as follows: 29 (1) Contributions to an old age or retirement benefit plan 30 made by an employer or a collective bargaining unit on behalf of 19970H0769B0869 - 3 -
1 an employe are excluded from the income of the employe except as 2 may be otherwise provided in this article. 3 (2) Contributions to an old age or retirement benefit plan 4 made by an employe or by another individual, directly or 5 indirectly, whether through payroll deduction, a salary 6 reduction agreement, payment direct to an employe in cash or any 7 other program on behalf of the employe, are excludable from 8 income of the employe. 9 (3) Contributions to an old age or retirement benefit plan 10 by or on behalf of or attributable to a self-employed person are 11 excludable from the income of the self-employed individual. 12 (b) (1) Except as provided in clause (2), (3) or (4), 13 amounts distributed from an old age or retirement benefit plan 14 to an individual shall be included in the income of that 15 individual to the extent that contributions to the old age or 16 retirement benefit plan were not previously included in income. 17 (2) Any distribution made on or after the retirement of an 18 individual from employment after reaching a specified age or 19 after a stated period of employment shall not be included in the 20 income of that individual to the extent that the amount of the 21 distribution represents a return of employer contributions. 22 (3) Any distribution made on or after the retirement of an 23 individual from employment after reaching a specified age or 24 after a stated period of employment shall not be included in the 25 income of that individual to the extent that the amount of the 26 distribution represents income on all classes of assets held in 27 the old age or retirement benefit plan. 28 (4) Any distribution made for transfer into another old age 29 or retirement benefit plan where the transferred amounts are not 30 included in income under section 403(a)(4) of the Internal 19970H0769B0869 - 4 -
1 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.). 2 (c) (1) Except as provided in clause (2), any premature 3 distribution of employe contributions to an old age or 4 retirement benefit plan is subject to an additional tax penalty 5 equal to one per cent and calculated by adding to the amount of 6 the individual's tax determined under section 302 for the 7 taxable year an amount equal to one per cent of the amount of 8 the premature distribution which is included in the income of 9 that individual and is a return of that individual's 10 contributions to the old age or retirement benefit plan. 11 (2) The provisions of clause (1) shall not apply to any 12 premature distribution which satisfies any of the following 13 criteria: 14 (i) The distribution is made on or after retirement from 15 service after reaching a specified age or after a stated period 16 of employment. 17 (ii) The distribution is made on or after the death of the 18 holder. 19 (iii) The distribution is attributable to the taxpayer's 20 becoming permanently disabled, as defined by regulations 21 promulgated by the Secretary of Revenue. 22 (iv) The distribution is made for the purpose of purchasing 23 long-term care coverage or a long-term care insurance policy. 24 (v) The distribution is made for the purpose of purchasing 25 the taxpayer's first primary residence. 26 (vi) The distribution is made by reason of financial 27 hardship of the taxpayer, as defined by regulations promulgated 28 by the Secretary of Revenue. 29 Section 4. This act shall take effect January 1, 1998. A27L72BIL/19970H0769B0869 - 5 -