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Estate and Elder Law

Uniformity argument fails despite income tax on employee 401(k) contributions but not on employer 401(k) contributions (Pa. Commw. Ct. Dec. 16, 2010)

In Boguslavsky v. N. Pocono Sch. Dist., 2010 Pa. Commw. LEXIS 677 (Pa. Commw. Ct. Dec. 16, 2010) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law], a taxpayer's complaint against a school district alleged, inter alia, that the district's earned income tax violated constitutional principles of uniformity because: (1) the tax was imposed on earned income but not unearned income; and (2) the tax was imposed on employee contributions to 401(k) plans but not employer contributions to 401(k) plans. The trial court granted summary judgment to the district, and the taxpayer sought review.

On appeal, the court affirmed. Addressing the taxpayer's 401(k) contributions argument, the court stated:

In Kalodner v. Commonwealth, 150 Pa. Commw. 248, 615 A.2d 900, 904 (Pa. Cmwlth. 1992) [enhanced version], this court considered whether an income tax unjustifiably discriminates against self-employed persons because it taxes as income the contributions to a retirement plan made by a self-employed person but does not tax the contributions to a retirement plan made by an employer for the benefit of an employee. This court held that the tax was justified because the contributions made by self-employed persons come from money they actually received as income, but the contributions made by employers for the benefit of employees may not have been actually or constructively received by the employees due to substantial limitations and restrictions on the receipt of benefits under the retirement plan. Thus, this court has articulated a reason justifying the exclusion from income, for tax purposes, of an employer's 401(k) contributions.

(footnotes and citations omitted)