Updated October 24, 2026. Quick answer: Line 3 of the Pennsylvania Form PA-40 is where you report dividend income and capital gains distributions from mutual funds. It is for anyone who received dividends during the year, and the booklet says to complete PA Schedule B if required. The amount is added into the line 9 total of Pennsylvania taxable income.
What this line does
Line 3 on the form reads “Dividend and Capital Gains Distributions Income. Complete PA Schedule B if required.”. The booklet’s instruction heading is “LINE 3. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS FROM MUTUAL FUNDS”, and its schedule heading is “PA SCHEDULE B (LINE 3)”. The line sits on the first page of the PA-40 (marked Side 1).
This page covers line 3. The line before it is covered on Pennsylvania Form PA-40 line 2, and the full run of lines is on Pennsylvania Form PA-40 line by line.
Who it applies to
The booklet speaks to anyone with dividends. “Report all dividend income received or credited during 2025.” It names mutual fund holders directly: “Report capital gains distributions from your mutual funds from Box 2a of your 1099-DIV as PA-taxable dividend income, even though you report such distributions as capital gains on federal Schedule D.”
The 1099-DIV boxes behind those numbers are covered on 1099-DIV boxes 1a and 1b and 1099-DIV box 2a.
What the instructions say
The booklet’s text for line 3 is on page 15, and the Schedule B instructions begin on page 32. Each sentence is printed below as the booklet gives it.
| Line | What the form says |
|---|---|
| Form label | “Dividend and Capital Gains Distributions Income. Complete PA Schedule B if required.” |
| Line 3 | “Report all dividend income received or credited during 2025.” “You do not have to submit your Form(s) 1099-DIV and other statements.” |
| Schedule B pointer | “See instructions for this schedule beginning on Page 32 for when to complete and submit PA schedule B.” “You cannot substitute a Federal Schedule B for PA Schedule B.” |
| Capital gains distributions | “Report capital gains distributions from your mutual funds from Box 2a of your 1099-DIV as PA-taxable dividend income, even though you report such distributions as capital gains on federal Schedule D.” |
| Capital gains distributions, schedule | “Capital gains distributions are taxable as dividend income on Line 3.” “Do not report capital gains distributions on PA Schedule D.” |
| Classifying dividends | “You must classify dividend income, regardless of how you report the income for federal purposes.” “Report personal dividends on Line 3.” |
| Business dividends | “Otherwise, include dividend income from business accounts and working capital dividend income in determining profit (loss) on your PA business schedule.” |
| Money market and mutual funds | “Include the earnings distributed to you (other than withdrawals of your previously PA-taxed contributions) as dividend income on Line 3.” |
| Another state’s S corporation | “If you are a shareholder in another state’s Subchapter S corporation, and that corporation elected not to be treated as a PA S corporation, include the cash or property you actually received out of the corporation’s earnings and profits as dividend income on Line 3.” |
| Distributions beyond earnings and profits | “If you received distributions in excess of the corporation’s earnings and profits, report these distributions on PA Schedule D.” |
| Credit for tax paid to another state | “A shareholder may not claim a credit for income tax paid to another state by an S corporation that elected not to be treated as a PA S corporation.” |
| Gross income class | “PA-taxable interest income (Line 2), dividend income (Line 3), and gambling and lottery winnings (Line 8) are gross taxable income classes.” “You may not deduct any expenses in computing these classes of income.” |
| When Schedule B is not submitted | “you must report your income on Line 3 of the PA-40, but you do not have to submit PA Schedule B.” |
| Stock dividend reinvestment | “You must include the stock’s fair market value as dividend income as of the date paid.” |
| Not dividend income, stock dividends | “Dividends distributed by a corporation to its stockholders as stock, if the distribution is not personal income for federal purposes.” |
| Not dividend income, exempt-interest | “Ordinary dividends paid by a mutual fund or a registered investment company that the fund/company statement designates as being exempt-interest dividends.” |
| Schedule B, line 1 | “Enter the amount of dividend income you reported on Line 3b of your federal Form 1040.” |
Where the result goes next
The line 3 amount is added on line 9. The form’s line 9 label reads “Total PA Taxable Income. Add only the positive income amounts from Lines 1c, 2, 3, 4, 5, 6, 7, and 8.” For the federal dividend lines, see Form 1040 lines 3a and 3b, and for the federal schedule, see Schedule B lines 5 and 6.
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
- Putting a mutual fund’s capital gains distribution only on the sales line. The booklet says “Do not report capital gains distributions on PA Schedule D.”
- Substituting the federal schedule. The booklet says “You cannot substitute a Federal Schedule B for PA Schedule B.”
- Reporting dividends by the federal label. The booklet says “You must classify dividend income, regardless of how you report the income for federal purposes.”
Related: 1099-DIV boxes 1a and 1b, 1099-DIV box 2a, Form 1040 lines 3a and 3b, and Schedule B lines 5 and 6.
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.
Talk to an advisor about retirement income taxes
For U.S. investors with $250,000 or more in investable assets. WiserAdvisor is an independent service matching you with 2 to 3 vetted advisers. Its form asks for your ZIP code and answers to a few questions; a match is not guaranteed.
Free to request, with no obligation to hire. By submitting, you consent to calls, texts and emails from WiserAdvisor and up to three advisers. Advisers pay for introductions.
Clear Money Guide may earn a referral payment for a qualifying completed form. An introduction is not a Clear Money Guide recommendation.
Opens on WiserAdvisor’s site in a new tab.
Explore advisor help with dividend and gains taxes
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 for a qualifying submitted form, 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
- 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.