Pennsylvania Tax Debt Relief
A low flat rate, a separate local earned income tax, and 69 collection districts. How Pennsylvania tax debt works and how it gets resolved.
This page is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently. Consult a qualified tax professional for advice specific to your situation.
Pennsylvania advertises one of the lowest flat income taxes in the country at 3.07%. The catch almost nobody mentions: for most working residents there is a second income tax underneath it, collected by a private company you have probably never heard of.
The part that trips people up
A second income tax layer, run by local collectors
On top of the 3.07% state tax, nearly every working Pennsylvanian outside Philadelphia also owes a local Earned Income Tax (EIT) on wages and net profits, commonly around 1%, set by the municipality and school district where they live. Under Act 32 of 2008, the state consolidated hundreds of local collectors down to about 14 countywide Tax Collection Districts, but the collectors are private firms, most often Berkheimer (HAB) or Keystone Collections Group, not the Department of Revenue. A taxpayer can be fully square with the state and still have a separate delinquent local EIT bill.
Two bills, two rulebooks
| State income tax | Local Earned Income Tax | |
|---|---|---|
| Who collects it | PA Department of Revenue | A local collector such as Berkheimer or Keystone |
| Rate | 3.07% flat | Often about 1%, set by your municipality and school district |
| Penalty and interest | State penalty and interest rules | Governed by the Local Tax Enabling Act, with its own costs |
Philadelphia plays by its own rules
People who live or work in Philadelphia pay the City Wage Tax rather than a standard suburban EIT, and it is far higher than a typical 1% local rate. As of the rate that took effect July 1, 2025, the Wage Tax is 3.74% for residents and 3.43% for non-residents who work in the city, administered by the City of Philadelphia Department of Revenue with its own penalties and interest. Philadelphia has approved gradual annual reductions through 2030, so the exact rate depends on the pay date.
A flat base with nowhere to hide income
Pennsylvania pairs one of the nation's lowest flat rates, 3.07%, with no standard deduction and no personal exemption. That means back taxes are calculated on a broad base with almost nothing to reduce it, so a taxpayer generally cannot lower an old liability by claiming deductions after the fact the way they might in a graduated-bracket state.
A finite collection window that is fairly new
For most of its history Pennsylvania had no statute of limitations on collecting state tax. Act 90 of 2019 changed that, giving the Department of Revenue a 10-year collection window effective January 1, 2021. Older debts are anchored to a January 1, 2021 start date, so they can still be pursued until 2031, and the clock is paused during appeals and does not apply to fraud or unremitted trust-fund taxes.
Estimate the state side of a Pennsylvania balance
This covers the 3.07% state tax. Any local Earned Income Tax you owe is billed and penalized separately by your local collector.
State Penalty & Interest Estimator
Estimate the late filing penalty, late payment penalty, and interest on unpaid state tax. The state rate is built in, so there is nothing to look up.
Estimated total owed
Important This is a general estimate, not tax or legal advice, and not the state's official calculation. ClearChoiceRadar is not affiliated with, endorsed by, or acting on behalf of any state tax authority. Penalties may be reduced or removed for reasonable cause. Only the state tax authority can determine your exact balance.
Resolving a Pennsylvania balance
- Deferred Payment Plan (DPP)
- Pennsylvania calls its installment agreements Deferred Payment Plans. There is no form to file; taxpayers arrange a plan by contacting the Department of Revenue Collection Unit at 717-783-3000. Shorter plans commonly run 6 to 12 months, and taxpayers with larger balances or mild hardship may be approved for 24 months or more at the Department's discretion. Penalties and interest continue to accrue on the unpaid balance while the plan is active.
- Request for Compromise (Board of Appeals)
- The Board of Appeals has statutory authority to compromise the amount of tax, interest, penalty, or additions on two grounds: doubt as to liability and promotion of effective tax administration. This is filed with the Board of Appeals, often using form REV-567. Importantly, the Board cannot grant a pure hardship or inability-to-pay compromise, which is treated as a collections matter rather than an appeals matter, so Pennsylvania's compromise process is narrower than the federal IRS Offer in Compromise.
- Penalty abatement for reasonable cause
- Penalties may be waived where the taxpayer shows reasonable cause, such as serious illness, a death in the family, or a natural disaster, supported by documentation. Abatement is discretionary and does not remove the underlying tax or the statutory interest, which is set by law and generally not waivable.
Pennsylvania tax debt questions
What is Pennsylvania's income tax rate on back taxes?
Pennsylvania uses a single flat rate of 3.07% on personal income, and that same rate applies to prior-year liabilities. Because there is no standard deduction or personal exemption, there is very little that reduces the taxable base, so an old balance is generally calculated on nearly all of the income for that year.
How much interest and penalty does Pennsylvania charge on unpaid state tax?
For a return filed on time but not paid, Pennsylvania adds a one-time 5% underpayment penalty plus daily simple interest, currently 7% per year for 2025 and 2026 (it was 8% in 2024 and 7% in 2023). If the return is also filed late, a 5%-per-month penalty applies instead, up to 25% of the tax due with a $5 minimum. Interest is set each year to the federal rate and published on form REV-1611.
Is the local Earned Income Tax separate from state tax?
Yes. Most Pennsylvanians outside Philadelphia owe a local Earned Income Tax, commonly around 1%, on top of the 3.07% state tax. It is collected by a private firm such as Berkheimer or Keystone under Act 32, not by the Department of Revenue, and delinquent local EIT carries its own interest (about 6% per year), a 1%-per-month penalty, and Act 192 collection costs. Paying off a state balance does not clear a local EIT balance.
How long can Pennsylvania collect on a tax debt?
Since Act 90 of 2019, the Department of Revenue generally has 10 years to collect an assessed liability, effective January 1, 2021, meaning the oldest pre-2021 debts can be pursued until 2031. The clock pauses during appeals, and there is no time limit for fraud, willful failure to file, or unremitted trust-fund taxes. Local EIT collected by outside firms is not governed by this state limit.
Does Pennsylvania have an Offer in Compromise like the IRS?
Not in the same way. The Board of Appeals can compromise a liability only for doubt as to liability or to promote effective tax administration; it cannot approve a compromise based solely on inability to pay. For most taxpayers who simply cannot pay in full, the practical option is a Deferred Payment Plan through the Collection Unit at 717-783-3000, typically 6 to 24 months. This information is educational and not tax advice.
Sources and further reading: PA Department of Revenue, REV-1611 Interest Rate and Calculation Method (2026), PA Personal Income Tax Guide, Penalties, Interest and Other Additions, PA Department of Revenue, Current interest rate, PA Department of Revenue, PA Tax Liens, PA Department of Revenue, Private Collection Agencies, PA Department of Revenue, Request for Compromise (Board of Appeals), PA DCED, Act 32 Local Income Tax information (PSD codes and EIT rates), Pennsylvania General Assembly, Local Tax Enabling Act (Act 511 of 1965) and Act 192 of 2004, City of Philadelphia, Wage Tax rates, HBK CPAs, PA Act 90 statute of limitations update. Rates and rules change; confirm current figures with the Pennsylvania Department of Revenue before you rely on them.
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