Media Center

Net operating loss deduction rules continue to expand

For net operating losses (NOLs) incurred in tax years beginning before Jan. 1, 2025, the net operating loss deduction for CNIT purposes was limited to 40% of taxable income. For NOLs incurred in tax years beginning on or after Jan. 1, 2025, the cap on the NOL deduction has been increased to 50% for tax years beginning in 2026, with expansion to:

Pennsylvania diverges from certain federal tax changes

Act 45 of 2025 decoupled Pennsylvania’s CNIT from certain provisions in OBBBA. In particular, Pennsylvania will not follow OBBBA provisions allowing for the immediate expensing of research and experimentation expenditures and qualified production property, such as manufacturing plants.

The amount of business interest expense that can be deducted may also be lower for CNIT purposes than for federal income tax purposes, because Pennsylvania will continue to calculate the limitation under IRC Section 163(j) as it existed on Dec. 31, 2024. Corporate taxpayers will need to maintain separate workpapers to track these differences.

Higher estimated tax thresholds may reduce filing burdens for some individuals

Individual taxpayers, trusts, and estates will benefit from increased thresholds for estimated tax declarations beginning in 2026. For the 2026 taxable year, the income threshold requiring a declaration of estimated tax will rise to $14,000, excluding income already subject to withholding. This threshold will continue to increase annually, reaching $20,000 by 2028.

Individuals whose interest, dividends, rental income, or self-employment income falls below the new thresholds may no longer need to make quarterly estimated payments. However, taxpayers should still consider whether voluntary estimated payments make sense to avoid underpayment penalties or an unexpected balance due at filing time.

Individual tax relief provisions to keep in mind

Pennsylvania residents may benefit from several individual tax relief provisions. First, the Child and Dependent Care Enhancement Tax Credit was expanded several years ago to allow eligible taxpayers who qualify for the federal Child and Dependent Care Credit to claim the full Pennsylvania enhancement, up to 100% of the federal credit amount, through Schedule DC.

Second, a new personal income tax deduction for student loan interest payments is available, starting with the 2025 tax year. Pennsylvania residents may deduct up to $2,500 per year in qualifying student loan interest payments from their taxable income.
Taxpayers should keep records of interest payments and confirm eligibility requirements with their tax advisers.

Working Pennsylvanians may benefit from a new refundable credit

Working Pennsylvanians with low-to-moderate incomes may be eligible to receive a tax credit of up to $805 through a new, refundable Working Pennsylvanians Tax Credit (WPTC) starting with the 2026 tax season for the 2025 tax year. The credit is available to those who qualify for the Federal Earned Income Tax Credit (EITC). The WPTC is 10% of the Federal EITC, with a cap of $805. The Pennsylvania Department of Revenue will calculate the WPTC automatically if a copy of the Federal Form 1040 is included with the PA Personal Income Tax return.

Property tax reassessments should be part of 2026 planning

Mercer and Juniata counties have also announced countywide reassessments scheduled for 2027, while Northumberland County’s reassessment is slated for 2028. Properties that have appreciated significantly since the last reassessment may see substantial tax increases, while owners of properties that have declined in value or been over-assessed may find relief.

Property owners, especially businesses and investors with substantial real estate holdings, should begin gathering documentation on property condition, comparable sales, and, for commercial properties, income data well before notices are issued so they are prepared for possible appeals.

Sales and use tax remains stable, but enforcement continues to be a key risk area

Pennsylvania’s sales and use tax framework remains largely stable, with no rate changes or significant changes in available exemptions foreseen for 2026. However, tax practitioners and businesses should remain attentive to the Department of Revenue’s interpretive guidance and ongoing enforcement priorities. In recent years, the department has focused significant attention on computer software, digital goods, and related services. Since the scope of the sales tax was expanded to apply to digital property, regardless of how it is delivered or accessed, the Department of Revenue has taken the position that many services that historically were not subject to sales tax are now taxable. Examples include software implementation, graphic design, information retrieval, website development, and various types of online services. The taxability of computer software and related services, as well as online services, has become a very common issue in Pennsylvania sales and use tax audits in recent years. Businesses should keep in mind that the Department of Revenue has been taking aggressive positions on the taxability of these transactions.

The department has also focused on helping supply services and commercial building cleaning services. For remote help supply services, the department now treats the services as taxable based on the purchaser’s location rather than the location where the services are performed.

For help supply services and commercial building cleaning services, separately stated employee costs are excluded from the tax base. Last year, the department announced that it would no longer accept vendor attestation letters when reviewing refund requests. It will still accept those letters during purchaser audits, but it may assess the vendor if it determines the vendor’s employee costs were inaccurate.

Data center operators should revisit exemption eligibility in 2026

While not a new development for 2026, the Pennsylvania Computer Data Center Equipment Program warrants attention given the surge of data center investment activity across the commonwealth this year. Enacted in 2021 and effective Jan. 1, 2022, this program provides a valuable sales and use tax exemption for purchases of computer data center equipment installed in certified facilities.

To qualify for certification, data center owners or operators must meet significant investment and job creation thresholds. In counties with populations of 250,000 or fewer, a data center must generate at least $75 million in new investment and create 25 new jobs by the fourth anniversary of certification. In more populous counties with 250,000 or more residents, the thresholds increase to $100 million in new investment and 45 new jobs.

Starting with the 2026 tax year, cryptocurrency mining operations are no longer eligible for the sales tax exemption on data center equipment. Businesses engaged in cryptocurrency mining that previously relied on this exemption must now account for sales and use tax on qualifying equipment purchases.

The Department of Revenue will not certify new data centers under this program after Dec. 31, 2032. Businesses contemplating significant data center investments should evaluate this incentive promptly.

Practical guidance for taxpayers and advisers

Businesses and taxpayers may consider the following steps:

• Update 2026 Pennsylvania tax provision calculations to reflect the reduced corporate net income tax rate.
• Maintain separate Pennsylvania workpapers for state-specific decoupling adjustments.
• Review net operating loss schedules carefully to distinguish between losses subject to different deduction limitations.
• Reassess estimated payment practices for individuals, trusts, and estates in light of the higher thresholds.
• Evaluate potential eligibility for individual credits and deductions before filing.
• Prepare early for county-wide reassessment notices and possible appeals.
• Review sales tax treatment of software, digital products, online services, help supply services, and refund support documentation.
• Assess whether technology or data center investments may qualify for available Pennsylvania incentives.

Steps to stay ahead of Pennsylvania tax changes in 2026

Taxpayers should continue to monitor Department of Revenue guidance and announcements throughout the year. Businesses, individuals, and advisers that address these issues early may be better positioned to reduce surprises, preserve filing accuracy, and respond effectively to audits, reassessments, or evolving administrative guidance. Working with tax advisers early in the year can also help taxpayers respond to these changes more effectively.