~ Author – Eric M. Arbore, CPA, Senior Tax Accountant ~
The state legislature recently enacted a few changes that will provide benefits to Pennsylvanians who receive royalties from oil and gas or coal and those who are making payments on student loans. The new regulations are a result of Senate Bill 654.
Regarding royalties, the IRS has allowed percentage depletion on income from oil and gas or coal of 15% of income. Previously, Pennsylvania has disallowed this deduction. Effective immediately for tax years beginning after December 31, 2023, Pennsylvania is aligning with the IRS to now allow this deduction against royalty income. For example, if a taxpayer receives natural gas royalties of $5,000, they will be able to deduct $750 of percentage depletion from that income. That would be a tax savings of $23.
Additionally, taxpayers with student loan debt will receive some relief in the coming years. The IRS has allowed a deduction for student loan interest paid, subject to income limitations, up to $2,500. Beginning in tax year 2025, Pennsylvanians will be able to make a similar deduction on their state returns. For those that qualify with at least $2,500 in interest paid, this will result in a tax savings of $77.
While these regulations won’t be life-changing, they will bring modest tax savings to a significant portion of Pennsylvanians. As always, please consult your tax advisor if you have any questions.