Pennsylvania Amends Tax Code to Recognize Irrevocable Grantor Trusts
Jaime Aulicino, EA
On December 14, 2023, Governor of Pennsylvania Josh Shapiro signed Senate Bill (SB) 815 into law, aligning Pennsylvania law with Federal grantor trust treatment. The enactment of this bill shifts the responsibility for reporting income and paying tax from the trustee or beneficiary of an irrevocable grantor trust in Pennsylvania to the grantor or owner of the trust.
Previous Tax Treatment
Prior to this law change, irrevocable grantor trusts were treated as taxable entities for Pennsylvania purposes and were required to file a Form PA-41. The income was taxed to the trust and/or beneficiaries. With SB 815, Pennsylvania now aligns with federal provisions, which essentially treats grantor trusts as disregarded entities. This means that the grantor or owner of the trust will pay Pennsylvania tax on the income received by the trust, regardless of receipt or distribution. All of the trust income will be reported on the grantor or owner’s personal Pennsylvania tax return.
Effective Date
The new law goes into effect on February 23, 2024, which is 60 days from enactment. This pushes the reporting and filing requirements to tax years beginning on or after January 1, 2025. For tax years after 2024, the grantors will need to consider estimated payments and local reporting requirements on this new income, which beneficiaries should then consider how this effects their individual tax reporting. Trustees will be free of the requirement to make estimated payments on behalf of the trust, pay tax on income of the trust, or issue tax letters to the beneficiaries.
Summary
If you believe you will be affected by SB 815, please reach out to your trusted Louis Plung & Company advisor to discuss how to prepare for the new reporting requirements. If you do not yet have an advisor, please email [email protected].
