PA Tax Credit Aggregation

On November 22, 2023, the Pennsylvania Supreme Court issued an opinion in the case Zilka v. Tax Review Board City of Philadelphia.

The Court concluded that the City of Philadelphia’s tax scheme does not discriminate against interstate commerce by not allowing credit for certain income taxes paid by a Pennsylvania resident to Delaware. The Court’s decision in Zilka directly impacts Pennsylvania residents who work outside of Pennsylvania and claim credits on their Pennsylvania state and local income tax returns.

Personal Income Tax

Most states impose a personal income tax as a source of revenue. State income taxes generally vary in the rate of tax, what income the tax applies to, and who is subject to the tax. Both residents and nonresidents can be subject to state personal income tax depending on their specific contacts with the taxing state. Many states also allow local personal income taxes for individuals who live or work in the local jurisdiction.

Pennsylvania has both a state income tax (currently 3.07%) and local income tax (varies by jurisdiction) that applies to both Pennsylvania residents and nonresidents who work in the state. While Pennsylvania law allows local jurisdictions to establish and collect local income tax, the Pennsylvania Department of Revenue only administers the state personal income tax. Local jurisdictions must collect the tax or contract with local or regional groups to collect the tax on their behalf.

Some states enact reciprocal agreements where residents of one state will not be subject to state income tax in the other state where the individual works. Reciprocal agreements generally apply to only state income tax, not local income tax. Pennsylvania maintains reciprocity agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. Pennsylvania residents who work in a state without a reciprocal agreement are still required to file Pennsylvania income tax returns and remit Pennsylvania state and local income tax. However, these residents are generally able to claim a credit on their Pennsylvania state and local returns for income taxes paid to other states and jurisdictions.

Zilka Case Overview

Diane Zilka was a resident of Philadelphia who worked exclusively in Wilmington, DE from 2013 to 2016. Delaware and Pennsylvania do not have a reciprocal agreement, so Zilka’s income was subject to both Pennsylvania and Delaware state tax and Philadelphia and Wilmington local taxes. Zilka received a credit for Delaware state tax paid on her Pennsylvania state return and credit for Wilmington tax paid on her Philadelphia return.

However, with Delaware’s personal income tax rate at 5%, she was unable to receive full credit for her Delaware state income tax on her Pennsylvania state return. Zilka claimed the remaining 1.93% of Delaware state income tax as a credit on her Philadelphia local return, which was ultimately rejected by the City of Philadelphia. Zilka argued Philadelphia was required to provide her credit for tax paid to Delaware to avoid the double taxation of her income. Philadelphia argued that it provided Zilka credit for her Wilmington local tax, and that it was not required to provide her credit for state tax paid to Delaware. Zilka unsuccessfully appealed the rejection of the credit with the Philadelphia Tax Review Board and the Pennsylvania Commonwealth Court and ultimately appealed the issue to the Pennsylvania Supreme Court.

Pennsylvania Supreme Court’s Zilka Decision

The Pennsylvania Supreme Court ultimately upheld the decision of the Commonwealth Court in rejecting the credit and Zilka’s argument that she was subject to double taxation on her income. The Court determined that since Zilka received credit for her Delaware state and Wilmington local income taxes, she was only subject to one state and one local income tax. Although she was unable to obtain credit for the additional Delaware state tax paid, the additional tax paid compared to other Philadelphia residents was solely the result of her choosing to work in Wilmington. The Court held that Philadelphia’s policy to not provide credit for Delaware state tax was both internally and externally consistent and did not discriminate against interstate commerce.

What Impact does the Zilka Decision have on Pennsylvania Taxpayers?

Pennsylvania residents who work outside of Pennsylvania should be aware of their state and local income tax filing obligations. Even in reciprocal agreement states, PA residents may have local income tax filing obligations. While credits are generally available for taxes paid for work outside of Pennsylvania, taxpayers may not receive credit for all income tax paid outside of the state. Pennsylvania residents who choose to work outside of Pennsylvania need to be aware of the tax implications both in Pennsylvania and their state of employment.

Schneider Downs State and Local Tax (SALT) professionals are poised to help taxpayers with state personal income taxes, including working outside of your state of residence and the impact of the Zilka decision on Pennsylvania resident taxpayers. Please contact Stephen Worth or Mark Balistrieri with questions about personal income taxes or other state and local tax matters.

About Schneider Downs Tax Advisors 

With one of the largest regional tax practices in the country, Schneider Downs Tax Advisors’ personal focus on clients and in-depth understanding of current issues ensures that clients are complying with tax filing requirements and maximizing tax benefits. Our industry knowledge and focus ensure the delivery of technical tax strategies which can be implemented as practical business initiatives. Learn more at

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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