HARRISBURG — Pennsylvania lawmakers made two notable changes to the state’s constellation of tax credits as part of the four-month-late, $50.1 billion budget.
They created a new credit for low- and moderate-income workers, and revamped a five-year-old affordable housing credit. Democrats are touting the changes as wins in a deal that saw them make significant concessions on some of their other priorities, like funding public transit and reducing carbon emissions.
Here’s what you need to know:
Working Pennsylvanians Tax Credit
What is it?
The new Working Pennsylvanians Tax Credit mirrors the federal Earned Income Tax Credit, which reduces the amount of taxes low- and moderate-income people owe and possibly gives them a cash refund.
It’s “something that folks in the Capitol have been talking about for years and years and years,” Gov. Josh Shapiro told reporters at a news conference after the budget passed. “Working together, we got it done, and the good people of Pennsylvania are the beneficiaries.”
“We put money back into the pockets of low-income, working Pennsylvanians,” state Senate President Pro Tempore Kim Ward (R., Westmoreland) said on the floor of the chamber. “They can take that money and they can use it for shoes, food, long-term care, daycare, anything they want to use it for that helps them maintain their quality of life.”
Who is eligible?
The Shapiro administration estimates that 940,000 people in Pennsylvania will qualify next tax season, offering around $193 million in relief.
Individuals and couples qualify for the credit based on their annual income. Couples are eligible at higher income levels than individuals, and the number of children also factors into income eligibility.
For example, a married couple with one child can make up to $57,554 and qualify for the tax credit under 2025’s guidance, while a single filer with one child only qualifies if they make under $50,434. The full breakdown of income eligibility can be found here.
Other eligibility requirements include having investment income under $11,950, a valid Social Security number, and being a U.S citizen or legal resident for the whole year.
There are additional requirements if you file to claim the tax credit with no children, including being between the ages of 25 and 65, having lived in the U.S. for more than half the year, and not being claimed as a dependent of another person.
How much money will people save or get?
The state’s tax credit is equal to 10% of the federal one, the maximum amount of which is just over $8,000. The full breakdown can be found here.
The Shapiro administration created a tool to calculate if you qualify and how much you would receive from the state tax credit based on your filing status, number of dependents, and annual income. The calculator can be found here.
When does it start?
The Working Pennsylvanians Tax Credit will apply to 2025 returns, Shapiro said.
According to the state Department of Revenue, any qualified person who claims the federal credit when filing online will get the new state one applied to their Pennsylvania taxes automatically.
Paper and in-person filers can get assistance from the state, according to a spokesperson for the Department of Revenue. You can find the contact information for the agency here and your regional office here.
The amount of money people will save or potentially get from the new state tax credit will also be based on the federal EITC.
The state’s credit will be equal to 10% of the federal tax credit, which is capped at $8,046 for 2025. That means Pennsylvanians will be able to get up to $800 off their tax bills. If the tax credit is worth more than their tax bill, the difference will be refunded.
Affordable Housing Tax Credit
What is it?
Lawmakers amended what is now known as the Affordable Housing Tax Credit to give the Pennsylvania Housing Finance Authority (PHFA) additional flexibility to route funds to the projects it considers most useful for low-income people.
The credit was created in 2020. It mimics a federal low-income housing tax credit program and, until recently, offered up to $10 million annually in tax relief to affordable housing investors across the commonwealth.
Who is eligible?
Currently, the credit can be claimed by investors who partner with developers to pitch an affordable housing project to the PHFA. The authority, Executive Director Robin Wiessmann said, then selects the applicants who presented the best deals — that is, agreed to invest the most money in a development.
In its first year, investors could receive up to $1.5 million in tax breaks over five years per project, but due to large demand, PHFA limited the maximum tax break to $1 million over five years per project.
But that system had a downside. The affordable housing projects that received the tax credit were generally the ones that investors deemed to be the best investments, not the ones that were actually the most needed.
The change included in this year’s budget “takes that out of the equation,” she said.
Instead of pitching specific projects, investors — who do not need to be attached to an affordable housing project — will now bid on the tax credits.
The resulting revenue will go into a PHFA-controlled fund, and the PHFA will then dole out grants to affordable housing developers seeking support for their projects.
Phyllis Chamberlain, executive director of the Housing Alliance for Pennsylvania, said that the change mirrors the state’s tax credit on mixed-use site revitalization. The hope, she said, is that the new system will increase “private investment … in a way that doesn’t actually cost the state anything additional.”
In other words, the credit is now designed to be attractive to a wider pool of investors, not just the ones that want to be involved in building housing, Chamberlain said. That ideally means the credit will be more competitive, and the state will be able to get applicants who will pay more for it.
State House Speaker Joanna McClinton (D., Philadelphia) told Spotlight PA that the push for the change came from meetings with PHFA and housing advocates, who told her that having more flexibility in who can purchase the tax credit and which programs PHFA can fund with the money would help “close the financial gaps and really get these projects moving along.”
“You have so many hoops to jump through,” McClinton said. “Now, we'll have, going forward, a whole tax credit that will really help people in these projects to be able to get more interest from the private sector for investment.”