Does Pennsylvania Tax Your Tips and Overtime in 2026?

Pennsylvania taxes income at a flat 3.07% — but that state rate is only half the story. Unlike Illinois or California, most Pennsylvania workers also pay a separate local Earned Income Tax collected by their city, borough, or school district, on top of the state rate. Neither layer recognizes the OBBBA's federal tip or overtime deductions, so a Pennsylvania server or line cook can end up owing state tax, local tax, or both on income that's now tax-free on their federal return.

Quick answer

As of July 2026, Pennsylvania has not conformed to the OBBBA tips or overtime deductions, so both stay fully taxable on your PA-40 state return. Pennsylvania charges a flat 3.07% state income tax on all income, and most workers also owe a local Earned Income Tax of roughly 1% to 3.75% depending on where they live — neither layer offers a version of the federal break.

Does Pennsylvania tax tips under the OBBBA?

Yes. Pennsylvania has not adopted the OBBBA's no-tax-on-tips deduction. The qualified tip income you exclude on federal Schedule 1-A gets added back for Pennsylvania purposes and taxed like any other compensation, at the state's flat 3.07% rate.

According to this site's state conformity tracker, Pennsylvania is marked not conformed for both tips and overtime. You can see the full detail on the Pennsylvania state page. As of this writing, Pennsylvania proposals to exempt tips and overtime from state tax remain at the proposal stage — they haven't passed into law.

Does Pennsylvania tax overtime pay?

Yes, the same way. Pennsylvania hasn't conformed to the no-tax-on-overtime deduction either, so the FLSA overtime premium — the extra half-time portion of time-and-a-half pay, not your full overtime wages — that you deduct federally (up to $12,500 if single or head of household, $25,000 if married filing jointly) gets added back and taxed on your Pennsylvania return at 3.07%.

That happens regardless of your federal deduction size, and FICA payroll tax — 6.2% for Social Security plus 1.45% for Medicare — still comes out of every tipped or overtime dollar no matter what any state does. The OBBBA deductions only ever reduce income tax, federal or state; they never touch payroll tax.

Pennsylvania's local income tax layer

This is where Pennsylvania differs from every other state covered on this site. Under Act 32, more than 2,000 Pennsylvania municipalities and school districts levy their own local Earned Income Tax on top of the state's 3.07%, and none of them recognize the federal OBBBA deduction either, since the local tax is calculated off the same state-taxable income.

• Philadelphia: residents pay a 3.75% city wage tax; non-residents who work in the city but live elsewhere pay 3.44%
• Pittsburgh: about 3% combined (1% city plus 2% Pittsburgh School District)
• Most other municipalities and school districts: roughly 1% to just under 4%, set locally and collected alongside the state return

Jasmine waits tables in Philadelphia, earning $32,000 in wages plus $11,000 in tips. She deducts the full $11,000 federally under the OBBBA and owes no federal income tax on it. Pennsylvania doesn't recognize that deduction, so she owes 3.07% state tax on the $11,000 ($337.70) plus Philadelphia's 3.75% resident wage tax on the same amount ($412.50) — about $750 in combined state and local tax on income that's completely tax-free federally.

How to plan for Pennsylvania tax on your tips and overtime

Check your local rate first — it varies by where you live, not where you work, for most PA municipalities. Your employer withholds both the 3.07% state tax and your local EIT from your paycheck automatically based on your address, so most W-2 workers won't see a surprise bill unless tip income was under-reported during the year. If you're self-employed or work multiple tipped jobs, factor both layers into your quarterly estimated payments. For the fuller multi-state picture, see the roundup of state tax rules for tips and overtime, and run your exact numbers with the Tips & Overtime Calculator.

Frequently asked questions

Does Pennsylvania have any version of the federal "no tax on tips" deduction?

No. Pennsylvania has not passed conforming legislation for either OBBBA deduction. Every dollar of qualified tips and FLSA overtime premium you exclude from federal taxable income is added back on your Pennsylvania return and taxed at the state's flat 3.07% rate, plus your local Earned Income Tax if applicable.

Do I owe both the state rate and a local rate on my tips?

In most of Pennsylvania, yes. The 3.07% state rate applies everywhere, and on top of it, roughly 2,000 municipalities and school districts add their own Earned Income Tax under Act 32, generally between 1% and just under 4%. Philadelphia uses a separate wage tax system instead of the standard Act 32 EIT, currently 3.75% for residents.

Will Pennsylvania conform to the OBBBA tip and overtime deductions in the future?

Possibly. Proposals to exempt tips and overtime from Pennsylvania tax have circulated but had not passed as of mid-2026. States decide independently whether to conform, and status can change with each legislative session. Check this site's state conformity tracker periodically, since it updates as states pass new legislation.

Does my local EIT rate depend on where I live or where I work?

Generally where you live. Pennsylvania's Act 32 system is primarily resident-based — your employer withholds local EIT for your home municipality and school district, not the one where your restaurant or job site is located, though a small handful of PA cities also assess a separate non-resident tax on work performed within their limits.

How much extra state and local tax will I owe on my Pennsylvania tips and overtime?

Multiply your qualified tips and FLSA overtime premium — the amounts you exclude federally under the OBBBA — by 3.07% for the state, then add your local EIT rate (commonly 1% to 3.75%) for a combined estimate. A worker with $10,000 in tips or overtime and a 2% local rate owes roughly $507 in combined state and local tax that the federal deduction doesn't cover.

Sources

This site's state conformity tracker (last verified July 13, 2026); IRS, One Big Beautiful Bill Act: tax deductions for working Americans and seniors; Pennsylvania Office of the Budget, payroll guidance on the OBBBA no-tax-on-overtime provision. Local EIT and Philadelphia wage tax rates change periodically — verify current figures with your local tax collector or the City of Philadelphia before filing.

This article is general information, not tax advice. The figures and rules are estimates based on current IRS and Pennsylvania guidance and can change. For your situation, consult a qualified tax professional or the Pennsylvania Department of Revenue directly. Last reviewed July 21, 2026.