Pennsylvania Tax Planning for 2025 — With the One Big Beautiful Bill Act in Mind

kgalmai186
Sep 19
3 min read

Updated: Oct 26

As we approach the 2025 tax year (for returns filed in 2026), Pennsylvania taxpayers should be aware of both state-level issues and the sweeping changes brought by the One Big Beautiful Bill Act. The convergence of state rules and major federal tax changes means proactive planning has never been more important.

1. Why the One Big Beautiful Bill Act matters for all taxpayers

This law, signed July 4, 2025, introduces significant federal tax changes. Some highlights:

It permanently extends many of the rate and deduction provisions from the Tax Cuts and Jobs Act (TCJA).
It creates new deductions for specific groups (for example, “no tax on tips” and “no tax on overtime” for certain workers) starting in 2025.
It increases or modifies other tax-benefit provisions: e.g., a boosted standard deduction, expanded child tax credit, changes to charitable deduction rules, and more.

Because these federal changes will affect your taxable income, deductions, and possibly your behavior (how you structure income, investments and timing), they are especially relevant when doing Pennsylvania planning.

2. How Pennsylvania planning intersects with OBBBA

Here are some points you’ll want to focus on:

Standard deduction and itemizing: The federal standard deduction has been locked in and increased under OBBBA, which may reduce the number of taxpayers itemizing at the federal level. While Pennsylvania has a flat tax rate (3.07 %), your federal vs. itemize decision can change state-deductible items or reporting.
State & local tax (SALT) considerations: Although the SALT deduction is a federal itemized deduction, changes at the federal level (via OBBBA) may influence state planning and shifting of local tax burdens.
Special new federal deductions or income rules: For example, if you are a tipped worker or earn overtime, new federal deductions may reduce your federal taxable income — this may indirectly affect your state tax planning (for example, how much withheld, whether you’ll owe state estimated payments, etc.).
Business & pass-through planning: If you own a business or are a partner/shareholder in a pass-through entity in Pennsylvania, the OBBBA’s changes (for example making the Section 199A deduction permanent) matter.
Timing of income, deductions and life events: Because the federal rules are changing, the timing of when you incur income or deductions (e.g., investing, purchasing, charitable giving, taking a large itemized deduction) is doubly important for both federal and Pennsylvania tax results.

3. What Pennsylvania-based taxpayers should do now

Review your withholding and estimated tax payments for both federal and Pennsylvania levels. With federal changes, your net income and taxable income may shift.
Consider whether you will take the federal standard deduction (likely) or itemize. For those in Pennsylvania who live in high-tax municipalities or have large state or local tax burdens, it may still pay to itemize at the federal level — which can impact your planning at the state level.
Business owners should evaluate their entity structure, profit timing, investment in property, and whether the new federal rules (OBBBA) change the optimal strategy for state and federal combined tax outcomes.
For individuals: keep an eye on new federal deductions (tips, overtime, car-loan interest for certain vehicles, etc.) under OBBBA, and see how the tax savings might change your overall effective tax rate.
Stay alert for state-specific updates in Pennsylvania (for example, municipal taxes, local tax burdens, property tax rebates) and how federal changes might indirectly affect them.

4. Common mistakes to avoid

Assuming federal changes don’t “touch” your state taxes — they often do indirectly through changed income, deductions, or behavior.
Ignoring the need to revisit your tax strategy because of OBBBA: what was optimal under prior law may no longer be.
Neglecting state/local tax burdens even though Pennsylvania’s flat rate looks simple — local municipal taxes, residence changes, and state decisions still matter.
Relying only on “do what you did last year” — these are not normal years: federal law changed, and state planning must adapt accordingly.

5. Final thoughts

The 2025 tax year presents a unique convergence of significant federal change (via the One Big Beautiful Bill Act) and the ongoing state tax environment in Pennsylvania. For taxpayers and business owners in Pennsylvania, proactively planning — now — with both federal and state factors in mind is essential.

If you’d like help diving into your particular situation (income, business, life events), running “what-if” scenarios with the new federal rules plus your Pennsylvania state tax profile, or building a tax-planning checklist tailored to you, I’d be happy to assist.