PRINTER'S NO. 2100
No. 1714 Session of 1999
INTRODUCED BY BROWNE, ADOLPH, ALLEN, ARMSTRONG, CAWLEY, CIVERA,
M. COHEN, COLAFELLA, COY, CURRY, DALLY, DeLUCA, EGOLF,
FAIRCHILD, FARGO, FICHTER, FRANKEL, GEIST, GEORGE, GRUCELA,
HARHAI, HARHART, HENNESSEY, JAMES, LAUGHLIN, LYNCH, MAHER,
MAITLAND, McCALL, McILHINNEY, MICOZZIE, ORIE, PESCI,
PETRARCA, RAYMOND, ROHRER, ROONEY, ROSS, RUBLEY, SAINATO,
SATHER, SAYLOR, SEMMEL, SEYFERT, STEELMAN, E. Z. TAYLOR,
WALKO, WILT AND ZUG, JUNE 16, 1999
REFERRED TO COMMITTEE ON FINANCE, JUNE 16, 1999
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 April 23, 1998 (P.L.239, No.45), is amended and the section is
17 amended by adding a clause to read:
18 Section 301. Definitions.--The following words, terms and
19 phrases when used in this article shall have the meaning
1 ascribed to them in this section except where the context
2 clearly indicates a different meaning. Any reference in this
3 article to the Internal Revenue Code shall include the Internal
4 Revenue Code of 1954, as amended to the date on which this
5 article is effective:
6 * * *
7 (d) "Compensation" means and shall include salaries, wages,
8 commissions, bonuses and incentive payments whether based on
9 profits or otherwise, fees, tips and similar remuneration
10 received for services rendered, whether directly or through an
11 agent, and whether in cash or in property.
12 The term "compensation" shall not mean or include: (i)
13 periodic payments for sickness and disability other than regular
14 wages received during a period of sickness or disability; or
15 (ii) disability, retirement or other payments arising under
16 workmen's compensation acts, occupational disease acts and
17 similar legislation by any government; or [(iii) payments
18 commonly recognized as old age or retirement benefits paid to
19 persons retired from service after reaching a specific age or
20 after a stated period of employment; or] (iv) payments commonly
21 known as public assistance, or unemployment compensation
22 payments by any governmental agency; or (v) payments to
23 reimburse actual expenses; or (vi) payments made by employers or
24 labor unions, including payments made pursuant to a cafeteria
25 plan qualifying under section 125 of the Internal Revenue Code
26 of 1986 (Public Law 99-514, 26 U.S.C. § 125), for employe
27 benefit programs covering hospitalization, sickness, disability
28 or death, supplemental unemployment benefits or strike benefits:
29 Provided, That the program does not discriminate in favor of
30 highly compensated individuals as to eligibility to participate,
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1 payments or program benefits; or (vii) any compensation received
2 by United States servicemen serving in a combat zone; or (viii)
3 payments received by a foster parent for in-home care of foster
4 children from an agency of the Commonwealth or a political
5 subdivision thereof or an organization exempt from Federal tax
6 under section 501(c)(3) of the Internal Revenue Code of 1954
7 which is licensed by the Commonwealth or a political subdivision
8 thereof as a placement agency; or (ix) payments made by
9 employers or labor unions for employe benefit programs covering
10 social security or retirement; or (x) personal use of an
11 employer's owned or leased property or of employer-provided
12 services.
13 * * *
14 (x) "Old-age or retirement benefit plan" means and includes:
15 (i) any federally deferred payment program authorized under
16 Subtitle A, Chapter I, Subchapter D, Parts I and II of the
17 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1
18 et seq.), including any pension plan, profit-sharing plan, stock
19 bonus plan, money purchase plan or Federal Employee's Thrift
20 Savings Plan; (ii) Internal Revenue Code of 1986 section 401(k)
21 plan; (iii) Internal Revenue Code of 1986 section 403(b) plan;
22 (iv) simplified employe pension plan; (v) Keogh plan; or (vi)
23 any other old-age or retirement benefit plan.
24 Section 2. Section 303(a) of the act is amended by adding a
25 clause to read:
26 Section 303. Classes of Income.--(a) The classes of income
27 referred to above are as follows:
28 * * *
29 (9) Old-age or retirement benefit plans to be taxed as
30 provided in section 304.1.
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1 * * *
2 Section 3. The act is amended by adding a section to read:
3 Section 304.1. Taxability of Old-Age or Retirement Benefit
4 Plans.--(a) Contributions to old-age or retirement benefit
5 plans shall be subject to taxation as follows:
6 (1) Contributions to an old-age or retirement benefit plan
7 made by an employer or a collective bargaining unit on behalf of
8 an employe are excluded from the income of the employe except as
9 may be otherwise provided in this article.
10 (2) Contributions to an old-age or retirement benefit plan
11 made by an employe or by another individual, directly or
12 indirectly, whether through payroll deduction, a salary
13 reduction agreement, payment direct to an employe in cash or any
14 other program on behalf of the employe, are excludable from
15 income of the employe.
16 (3) Contributions to an old-age or retirement benefit plan
17 by or on behalf of or attributable to a self-employed person are
18 excludable from the income of the self-employed individual.
19 (b) (1) Except as provided in clause (2), (3) or (4),
20 amounts distributed from an old-age or retirement benefit plan
21 to an individual shall be included in the income of that
22 individual to the extent that contributions to the old-age or
23 retirement benefit plan were not previously included in income.
24 (2) Any distribution made on or after the retirement of an
25 individual from employment after reaching a specified age or
26 after a stated period of employment shall not be included in the
27 income of that individual to the extent that the amount of the
28 distribution represents a return of employer contributions.
29 (3) Any distribution made on or after the retirement of an
30 individual from employment after reaching a specified age or
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1 after a stated period of employment shall not be included in the
2 income of that individual to the extent that the amount of the
3 distribution represents income on all classes of assets held in
4 the old-age or retirement benefit plan.
5 (4) Any distribution made for transfer into another old-age
6 or retirement benefit plan where the transferred amounts are not
7 included in income under section 403(a)(4) of the Internal
8 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
9 (c) (1) Except as provided in clause (2), any premature
10 distribution of employe contributions to an old-age or
11 retirement benefit plan will be subject to an additional tax
12 penalty equal to one per cent and calculated by adding to the
13 amount of the individual's tax determined under section
14 302(a)(1) for the taxable year an amount equal to one per cent
15 of the amount of the premature distribution which is included in
16 the income of that individual and is a return of that
17 individual's contributions to the old-age or retirement benefit
18 plan.
19 (2) The provisions of clause (1) shall not apply to any
20 premature distribution which satisfies any of the following
21 criteria:
22 (i) The distribution is made on or after retirement from
23 service after reaching a specified age or after a stated period
24 of employment.
25 (ii) The distribution is made on or after the death of the
26 holder.
27 (iii) The distribution is attributable to the taxpayer's
28 becoming permanently disabled, as defined by regulations
29 promulgated by the Secretary of Revenue.
30 (iv) The distribution is made for the purpose of purchasing
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1 long-term care coverage or a long-term care insurance policy.
2 (v) The distribution is made for the purpose of purchasing
3 the taxpayer's first primary residence.
4 (vi) The distribution is made by reason of financial
5 hardship of the taxpayer, as defined by regulations promulgated
6 by the Secretary of Revenue.
7 Section 4. This act shall take effect January 1, 2000.
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