Updated October 24, 2026. Quick answer: Line 1b of the Pennsylvania Form PA-40 is for unreimbursed employee business expenses, and line 1c is net compensation. The booklet sends anyone with allowable job expenses to PA Schedule UE, and line 1c is line 1a minus line 1b. The line 1c amount is one of the positive income amounts added on line 9.
What this line does
Line 1b on the form reads “Unreimbursed Employee Business Expenses.” and line 1c reads “Net Compensation. Subtract Line 1b from Line 1a.”. The booklet’s instruction headings are “LINE 1b. UNREIMBURSED EMPLOYEE BUSINESS EXPENSES” and “LINE 1c. NET COMPENSATION”, and its schedule heading is “PA SCHEDULE UE (LINE 1b)”. These lines sit on the first page of the PA-40 (marked Side 1), directly under line 1a.
The compensation these lines start from is covered on Pennsylvania Form PA-40 line 1a, and the full run of lines is on Pennsylvania Form PA-40 line by line.
Who it applies to
The booklet describes who may use the schedule, and who may not. “Allowable employee business expenses for PA purposes are similar to, but not the same as, expenses for federal purposes.” It adds “Sole proprietors, partners, shareholders, or other self-employed individuals should not use PA Schedule UE to claim expenses.”
For nonresidents the booklet says “Nonresidents must use PA Schedule NRH to apportion expenses for PA personal income tax purposes.” The federal wage figure that feeds line 1a is covered on Form 1040 line 1z, and the W-2 boxes behind it are explained on W-2 boxes 1 to 8 explained.
What the instructions say
The booklet’s text for these lines is in two places, the short line 1b instruction on page 14 and the Schedule UE instructions that begin on page 27. Each sentence is printed below as the booklet gives it.
| Line | What the form says |
|---|---|
| Form label, 1b | “Unreimbursed Employee Business Expenses.” |
| Form label, 1c | “Net Compensation. Subtract Line 1b from Line 1a.” |
| Booklet, line 1b | “Review the instructions beginning on Page 27 to determine if you can deduct expenses from your PA-taxable compensation.” “PA law does not follow federal law for allowable employee business expenses.” |
| Booklet, line 1c | “Subtract Line 1b from Line 1a.” |
| Schedule UE, scope | “Allowable employee business expenses for PA purposes are similar to, but not the same as, expenses for federal purposes.” “PA law only permits expenses required to perform the duties of a job or profession.” |
| Allowed, test 1 | “Ordinary, customary, and accepted in the industry or occupation in which you work” |
| Allowed, test 2 | “Actually paid while performing the duties of your employment” |
| Allowed, test 3 | “Reasonable in amount and not excessive” |
| Allowed, test 4 | “Necessary to enable you to properly perform the duties of your employment” |
| Allowed, test 5 | “Directly related to performing the duties of your occupation or employment” |
| Per-diem rates | “You may not deduct expenses based upon federal per-diem allowances.” “You may only deduct those expenses actually paid while performing the duties of your employment.” |
| Not allowed, heading | “Pennsylvania Does Not Allow The Following Business Expenses, Even If Allowed for Federal Purposes:” |
| Not allowed, personal | “Personal, living, or family expenses” |
| Not allowed, dues | “Dues to fraternal organizations, professional societies, Chambers of Commerce, or recreational club memberships” |
| Not allowed, publications | “Dues and subscriptions to publications, including trade and professional publications” |
| Not allowed, giving | “Political candidate or campaign contributions”; “Charitable contributions” |
| Not allowed, commuting | “driving to and from work” |
| Not allowed, care | “Childcare or elderly care expenses” |
| Not allowed, insurance | “Life, disability income, and health insurance premiums” |
| Not allowed, plans | “Contributions to deferred compensation plans or other pension plans” |
| Not allowed, job search | “Job hunting or other pursuit of employment expenses” |
| Not allowed, capital | “Capital expenditures”; “Expenses calculated at federal per-diem rates.” |
| Reimbursed in the exact amount | “You did not incur an allowable business expense during the year if you:” |
| Reimbursements, what to do | “Do not include such reimbursements in gross compensation.” “Do not claim such expenses on a PA Schedule UE.” |
| No reimbursement, excess | “If your employer does not reimburse you, you may reduce your compensation by your allowable expenses.” “If your reimbursement is more than your allowable expenses, you must report the excess as taxable compensation on Line 1a.” |
| Self-employed | “Sole proprietors, partners, shareholders, or other self-employed individuals should not use PA Schedule UE to claim expenses.” |
| Nonresidents | “Nonresidents must use PA Schedule NRH to apportion expenses for PA personal income tax purposes.” |
| One schedule per employer | “You must file a separate PA Schedule UE for each employer and each taxpayer.” “Spouses may not report joint expenses on a PA Schedule UE, even if filing jointly.” |
| Incomplete schedule | “An incomplete schedule may result in delays in the processing of your return and/or denial of the expenses.” |
| Evidence | “The department has the legal authority to request evidence that your expenses are allowable for PA purposes.” |
The figures the form prints
Three figures sit inside single sentences. On the share of expenses: “You may deduct 100 percent of your PA-allowable unreimbursed employee business expenses.” On limits and thresholds: “PA law does not have federal expense and percentage accounting limitations and thresholds.” On records: “Keep your necessary documents, receipts, vouchers and other records for at least four years.”
The booklet also prints a worked case with a reimbursement larger than the expenses: “Dave earned compensation of $30,000. He incurred allowable vehicle and travel employee business expenses of $3,000, and was reimbursed $3,500.” Its result reads “He includes the excess $500 as compensation. His total net taxable compensation is $30,500.”
Where the result goes next
Line 1c is the line 1a amount less line 1b. The line 9 label then reads “Total PA Taxable Income. Add only the positive income amounts from Lines 1c, 2, 3, 4, 5, 6, 7, and 8.” Line 1c is the first of those amounts. For how the federal return adds up total income, see Form 1040 lines 9, 10 and 11.
A worked example
Illustration, not a state example, recomputed from the booklet’s own Dave figures above: the excess is $3,500 reimbursed minus $3,000 of expenses. That is $500. Then $30,000 of compensation plus that $500 is $30,500. The arithmetic is shown in full in the booklet’s own sentences, and it matches.
Edition and line numbers
This page reads 2025 PA Personal Income Tax Return Instructions (PA-40 IN), Pennsylvania Department of Revenue, and 2025 Form PA-40, Pennsylvania Income Tax Return, Pennsylvania Department of Revenue, for tax year 2025, the current files the Pennsylvania Department of Revenue served on 2026-10-24. Check the edition printed on your own form and use that edition’s line numbers.
Common mistakes
- Claiming an expense the booklet bars. The booklet’s list of expenses Pennsylvania does not allow includes “Commuting expenses” described as “driving to and from work”
- Claiming expenses the employer already reimbursed in the exact amount. The booklet says “Do not claim such expenses on a PA Schedule UE.”
- Using one schedule for a couple. The booklet says “Spouses may not report joint expenses on a PA Schedule UE, even if filing jointly.”
Related: Form 1040 line 1z, W-2 boxes 1 to 8 explained, and Form 1040 lines 9, 10 and 11.
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Answer againSources
- 2025 PA Personal Income Tax Return Instructions (PA-40 IN), Pennsylvania Department of Revenue: www.pa.gov
- 2025 Form PA-40, Pennsylvania Income Tax Return, Pennsylvania Department of Revenue: www.pa.gov
- Related official page (not quoted): Pennsylvania Department of Revenue, personal income tax forms and publications: www.pa.gov
Read from the state revenue documents linked above on October 24, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the state revenue department is the right place to confirm anything consequential.