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Pennsylvania Finalizes 2026-2027 State Budget 

Pennsylvania Finalizes 2026-2027 State Budget 

On July 12, the Pennsylvania House and Senate completed a series of votes to finalize the budget for the 2026-2027 fiscal year. The budget bill passed 167-35 in the House and 44-6 in the Senate. The fiscal code, which contains many of the policies included in the overall agreement and directs how funding in the budget bill is allocated, passed 188-14 in the House and 46-4 in the Senate. 

The finalized budget keeps the Corporate Net Income Tax phase-down and the Net Operating Losses the same. 

  • Corporate Net Income Tax (CNI) phase-down: The budget keeps the existing schedule in place for reducing the CNI rate, which is set to decrease from 7.49 percent to 6.99 percent in 2027. This is part of a longer phase-down that began at 9.99 percent and remains on track to reach 4.99 percent by 2031. The schedule was not changed in this year’s budget, so the rate reductions already planned for each year through 2031 will proceed as originally enacted. 
  • Net Operating Losses: The budget keeps in place the changes to Pennsylvania’s treatment of Net Operating Losses that were enacted in 2024. Under current law, the deduction cap for losses incurred on or after January 1, 2025, increases gradually each year, moving from 40 percent up to 80 percent by 2029. Losses incurred before January 1, 2025, continue to be subject to the original 40 percent cap. Businesses with losses on both sides of that date will need to apply the correct cap depending on when each loss was incurred. 

One change for businesses that file under Philadelphia’s Business Income & Receipts tax: 

  • Philadelphia’s Business Income & Receipts Tax (BIRT): The budget decouples the tax base of BIRT, generally called the Philadelphia business privilege tax, from the federal tax base in three specific areas: research and experimental expenditures, qualified production property and business interest calculations. As a result, future changes to federal tax treatment in these areas will no longer automatically apply to how Philadelphia calculates the business privilege tax.  

Proposals Not Included in the 2026-2027 Pennsylvania Budget 

As part of the overall budget discussion, there were several proposals that would affect businesses in Pennsylvania that were not included in the budget. The following are some of the key items that were discussed: 

  • No Mandatory Unitary Combined Reporting for Corporate Net Income Tax: A proposal that would require corporations engaged in unitary business to combine their income and file as a single entity was not included. This would have increased the cost and complexity of filing tax returns for businesses falling under this category. 
  • No Digital Advertising Tax: The proposed tax would have increased costs for Pennsylvania businesses who advertise online. A similar tax was enacted in Maryland in March of 2021 and is currently in litigation, with many major tech organizations claiming that the tax violates the federal Internet Tax Freedom Act (ITFA) and the Commerce Clause.  
  • No Paid Leave Mandate: This mandate would have required new payroll taxes to fund paid leave benefits for individuals taking up to 20 weeks of leave per year. 
  • No Minimum Wage increase from $7.25 to $15 per hour: The minimum wage in Pennsylvania remains unchanged. 

If you have any questions on how Pennsylvania’s budget tax cuts will affect you, please contact your Brown Plus advisor. 

Posted In: Tax | Insights

About the Author - Randy Fackler, CPA, CEPA, MST

Randy is a Principal and the Tax Director at Brown Plus and is one of the key members of the Firm’s Tax Department. As Tax Director and Principal, Randy is responsible for managing tax consulting and compliance services for his clients, as well as overseeing the Brown Plus Tax Department.

Randy has over 30 years of experience in public accounting and working with clients in numerous industries including manufacturing and distribution, retail, healthcare, professional services and high-net-worth individuals. He assists clients with general business advisory services such as tax accounting methods, tax planning and consulting, cash flow needs analysis, merger and acquisition analysis, product profitability analysis, forecasting and more.

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