Governor Shapiro signed Senate Bill 815 on December 14, 2023, amending 72 P.S. 7203. Pennsylvania will finally follow the federal grantor trust rules, joining the other forty-nine states (and the District of Columbia). Income received by a Pennsylvania resident trust, or a nonresident trust from sources within Pennsylvania, which is an irrevocable grantor trust for federal income tax purposes will be taxable to the grantor for Pennsylvania income tax purposes, regardless of whether the income is distributed to beneficiaries. As a result of this law change, irrevocable grantor trusts will have a reduction of administrative and tax complexity compared to the old law that treated the trust as a separate income taxpayer for Pennsylvania income tax purposes.
It appears that this change will be effective for tax years beginning on or after January 1, 2025. Grantor trusts and grantors will have a variety of planning opportunities, including the ability to take advantage of new preferential state income tax treatment for sales, swaps, and loans. This will also necessitate an adjustment to estimated tax planning requirements for grantors, grantor trusts and beneficiaries for the 2025 tax year. Pennsylvania Department of Revenue guidance is expected to address administrative questions raised by this change, such as income tax return filing requirements.
