Doing Business: Pittsburgh Taxes and Incentives
Pittsburgh is driving the world in innovation through ingenuity, creativity and top talent. For years, entrepreneurs in tech and other inventive industries have recognized the potential for new businesses in Pittsburgh and western Pennsylvania. Throughout the region, dynamics are shifting toward exciting startups and innovative tech advancements. As a matter of fact, Startup Genome ranked Pittsburgh as #23 among its top 100 emerging startup ecosystems.
Pennsylvania offers residents and businesses tax incentives, programs and credits. In terms of economic development, these benefits aid in opportunities for new businesses and residents alike. In fact, Pennsylvania provides tax incentives, such as tax-exempt financing, tax increment financing and tax abatements based on different eligibilities. These tax incentives and reductions work to increase investment in the state, improve the economic base, develop employment opportunities and contribute to the redevelopment of existing properties.
Starting a New Business in Pittsburgh
Starting a new business in the Pittsburgh area comes with many benefits, such as tax incentives and financial services provided by the Commonwealth of Pennsylvania. Some of the benefits of starting new businesses in Pittsburgh also transfer to businesses relocating to the city. Ranked as the third most livable city in the U.S. and with a powerful labor force of 1.29 million, Pittsburgh is an ideal place to incorporate.
Enjoying life inside and outside of work within a supportive community is one of the many reasons new businesses and residents choose to work in the city of Pittsburgh, within the Pittsburgh region or Allegheny County. Supporting passionate and creative individuals, Pittsburgh is at the center of innovation.
In addition to these benefits, the city supports new businesses and entrepreneurs, has cost-effective commercial real estate and has affordable housing for property owners. Pittsburghers also have access to the famous Strip District, which offers exciting storefronts, breweries, special events and old and new restaurants alike.
What Are Pittsburgh’s Tax Rates and Incentives?
The Commonwealth of Pennsylvania’s corporate tax rate is 8.99%, effective January 2023 through December 2023. Recent legislation introduced a rate reduction schedule, which will lower the corporate net income tax each year until it reaches 4.99% in January of 2031.
Although Pennsylvania has a corporate income tax, unless a corporation is a C corporation (traditional corporation), the business is not subjected to state tax on net worth or income. However, if transferred to an individual, that person’s income will be taxed. In addition, Pennsylvania’s sales tax is currently 6%, while there is a 1% local tax applied in Allegheny County.
Beyond the state, the city offers additional benefits. In fact, Pittsburgh corporations have access to various financial services, which include deductions for qualifying production activities, tax credits for specific activities and temporary “expensing” provisions. Let’s explore the different Pittsburgh tax credit programs and incentive programs offered to business owners, as well as FAQs.
Business Tax Rates
Corporations in Pittsburgh, Pennsylvania, are taxed federally on qualified worldwide income at a flat rate of 35% for corporations with taxable income greater than or equal to $18,333,333 USD. However, graduated rates for corporations start at as low as 15% when a corporation has a total taxable income of less than $18,333,333 USD. Aside from taxes such as social security and stamp duty (if applicable), corporations may also be required to pay additional taxes such as the payroll tax and/or real property tax.
Pennsylvania’s current business tax rate is 8.99%, effective January 2023 through December 2023. Exact breakdowns of business taxes depend on the corporation’s type. Here’s a look at the details:
- Corporations. Penn corporations must pay the state’s net income tax as well as a capital stock tax.
- S Corporations. Penn S corporations are usually not subject to a separate federal come tax. Instead, taxable income is transferred to the shareholders, which are then subject to federal tax.
- Limited Liability Companies (LLCs). LLCs in Pennsylvania are not required to pay an income tax to the state or federal government. Instead, members of the LLC will be taxed on their share of the business’s income.
- Partnerships. In Pennsylvania, income from the partnerships is distributed to each of the partners. From there, the partners pay federal and state tax on their distributed income.
- Sole Proprietorships. In the case of a sole proprietorship, any income from the business issued to the business owner will be subject to state income tax.
The Pittsburgh region is a fantastic location for new businesses and startups due to the nature of the area and number of financial services and tax incentives available. Pittsburgh has robust infrastructure, which includes an interstate highway system, inland port, airport and close proximity to other cities such as New York and Boston. Combined with state professional services and incentives for business owners, it is no wonder a growing number of businesses and taxpayers are choosing Pittsburgh.
- Tax Abatements. Tax abatements lower real estate taxes, which aid in the development of deteriorated areas, otherwise known as Keystone Opportunity Zones.
- Tax Increment Financing (TIF). TIFs help in real estate development by allowing property tax to incrementally increase over a defined period, which can reach no more than 20 years.
- Tax Exempt Financing. This type of program allows borrowers to fund wide-ranging projects cost-effectively. Generally, tax-exempt financing benefits borrowers by providing them with lower interest rates and longer tax payment options.
- Job Creation Tax Credits (JCTC) Program. This government-funded program seeks to further Pittsburgh’s economic development and revitalization opportunities and create jobs for Pennsylvania residents across multiple industries.
Top Talent and Companies
Pittsburgh is famous for its industrial spirit. The city founded for the purpose of steel manufacturing has grown into a hub for exciting industries, including cybersecurity, health care and life sciences, robotics, energy and AI, as well as small businesses, non-profits and local businesses.
Aided by top talent originating from the area’s high schools, vocational schools and colleges, Pittsburgh has the fifth largest share of educated millennials among the top 40 metros. As a top emerging startup ecosystem, Pittsburgh is home of the successes of startups like Duolingo, Honeycomb Credit, Marinus Analytics and many others, which all work to keep the industrial and innovative spirit of Pittsburgh alive.