Updated October 5, 2026. Quick answer: It depends on the kind of annuity. Pennsylvania’s personal income tax is “levied at the rate of 3.07 percent”, but “Distributions are excludible from tax if they constitute a qualified annuity.” An annuity bought outside an employer plan or IRA is a non-qualified annuity, and its payments are taxed only as interest.
More state retirement-income schedules, line by line: Pennsylvania PA-40 retirement income.
How Pennsylvania treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Qualified annuity from a retirement plan is excludible; a non-qualified annuity is taxed as interest |
| Rate | 3.07 percent on taxable income |
| What counts as a qualified annuity | An arrangement with “equal, or substantially equal periodic payments, paid at least annually” for the participant’s life, life expectancy or another set period (61 Pa. Code 101.1) |
| Non-qualified annuities | “Amounts received under nonqualified annuities are not taxable as compensation.” “They constitute taxable interest to the extent they are includible” in federal gross income |
| IRA distributions | Treated as exempt retirement income when no early-withdrawal penalty applies, for example after age 59½ |
A $24,000 example
A qualified annuity paying $24,000 a year in equal periodic payments from an employer plan adds $0 of Pennsylvania tax.
A non-qualified annuity paying $24,000 a year, all of it federally taxable interest, is taxed at 3.07%, computed as $24,000 x 3.07% = $736.80. Only the part that is federally taxable counts.
What changes in 2026
The latest documents read print no 2026 change to the way annuity income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Pennsylvania taxes pensions, how Pennsylvania taxes retirement income, annuity income tax by state, how a surrendered annuity is taxed, and pension and annuity decisions.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for annuity decisions
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor weighs your payout
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment through this service, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- Personal Income Tax (Pennsylvania Department of Revenue): https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/personal-income-tax
- PA Personal Income Tax Guide: Gross Compensation (Pennsylvania Department of Revenue): https://www.pa.gov/agencies/revenue/forms-and-publications/pa-personal-income-tax-guide/gross-compensation
- PA Personal Income Tax Guide: Interest (Pennsylvania Department of Revenue): https://www.pa.gov/agencies/revenue/forms-and-publications/pa-personal-income-tax-guide/interest
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.