PA-20S/PA-65 Schedule M: 2024 PA Schedule M - Reconciliation of Federal-Taxable Income (Loss) to PA-Taxable Income (Loss) (PA-20S/PA-65 M) (2024)
Pennsylvania · Pennsylvania DOR · Used for tax years 2024
PA-20S/PA-65 Schedule M classifies federal income or loss into Pennsylvania personal income tax categories. It also reconciles federal business and rental/royalty income or loss to the amounts reportable under Pennsylvania rules.
Who files this form
All entities filing the PA-20S/PA-65 Information Return must file Schedule M, even if they have no adjustments to federal income or loss.
Schedule M classifies federal income for Pennsylvania personal income tax purposes and determines Pennsylvania business and rental/royalty income or loss. Business activity and rental/royalty activity must be reported on separate copies of Part II.
What you'll need
Have these forms and details available:
- Federal Schedule K from Form 1065 or Form 1120S. Part I starts with the income and loss amounts reported there.
- Your PA-20S/PA-65 Information Return. Use the same business name and nine-digit federal employer identification number (FEIN). The form also asks for your Pennsylvania sales tax license number.
- Applicable Pennsylvania schedules. Use Schedules A, B and D to adjust interest, dividend and gain/loss income, respectively. Schedule I supplies amounts for applicable intangible drilling cost adjustments.
Include these supporting documents when applicable:
- REV-1190 for taxes paid on income reported in Part II, Section V, Line a. Include the entity name, FEIN and tax year on that form.
- Itemized statements for other adjustments reported in Part II, Section II, Line h; Section III, Line d; Section V, Line g; and Section VI, Line i.
- A supplemental statement supporting the reclassification of estate/trust income or gambling/lottery winnings out of ordinary income. Report those amounts on Schedule J or Schedule T, respectively.
Common mistakes
- Using Part II for the wrong income classes. Use Schedules A, B and D for interest, dividend and gain/loss adjustments. The text warns that using Part II for these classes causes classification and reporting errors.
- Apportioning rental income. Rental income must be allocated between Pennsylvania and locations outside Pennsylvania. Part II, Section I, Box 2 must show total worldwide rental income.
- Leaving out required itemized statements. The text warns that items claimed in Section III, Line d, or Section VI, Line i, may be denied without a statement describing each item.
- Counting sales tax twice. If you deduct sales tax on depreciable assets in Section VI, Line b, do not also add it to the asset's depreciable basis for Pennsylvania purposes.
- Deducting shareholder health insurance twice. If the expense is already included in Part I, Line 1, Column (a), it cannot also be deducted in Part II, Section VI, Line e.
Questions people ask
What is the difference between Part I and Part II?
Part I classifies federal Schedule K income and loss into Pennsylvania income classes without adjusting the federal amounts. Part II reconciles federal business and rental/royalty income or loss to Pennsylvania amounts.
Should I enter cents in Part II?
No. Enter whole dollars only.
Does Pennsylvania allow federal bonus depreciation?
No. Pennsylvania does not allow bonus depreciation. Part II provides adjustments for differences between federal and Pennsylvania depreciation.
Can the entity deduct business meals and entertainment that were not deductible federally?
Pennsylvania allows 100 percent of customary and reasonable amounts expensed on business meals and entertainment. Report the amount disallowed for federal purposes in Part II, Section VI, Line a.
What changed on Schedule M for 2024?
Part II, Section II, Line a was removed and reserved for future use starting with 2024. Income should be recognized according to the entity's method of accounting. If the entity reported an adjustment on that line in the previous tax year, it must reverse that adjustment in Section III, Line d.