July 8, 1991
TO: PENSION MEMBERS NO. 23-91
RE: PENNSYLVANIA INCOME TAXATION OF 401(k) CONTRIBUTIONS
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Enclosed is a recent case in which a Pennsylvania employer
was found liable for failing to withhold Pennsylvania personal
income tax from certain amounts contributed to a 401(k) plan.
The court determined that Pennsylvania employers cannot
rely on Federal law to determine the income tax effects of
elective employee contributions to 401(k) plans. The court
determined that, for Pennsylvania income tax purposes, such
contributions are taxable compensation and the employer is
required to withhold the appropriate amounts from the income of
Pennsylvania employees participating in elective salary deferral
arrangements.
We will keep you informed of related developments.
W. Richard Mason
Assistant Counsel - Pension
Attachment