On July 11, Gov. Josh Shapiro signed into law a $47.6 billion budget for the 2024-2025 fiscal year. Along with investments in education, transportation, and development projects, the budget includes significant tax reform. Below are three of the top tax takeaways from the new budget.

An Increase in Net Operating Loss Deduction Limitation

The budget establishes a schedule for increasing the net operating loss (NOL) deduction limitation by 10% over four years. For 2024, the NOL carryforward deduction is limited to 40% of a corporation’s taxable income. Beginning Jan. 1, 2026, the NOL deduction limitation will increase to 50% and will increase by 10% annually, until it reaches an 80% limitation beginning Jan. 1, 2029. The budget also establishes a formula to account for losses previously carried forward prior to Jan. 1, 2025. For NOLs incurred prior Jan. 1, 2025, the limitation is 40% of taxable income. For NOLs incurred after Jan. 1, 2025, the limitation is The applicable percentage for the tax year minus the actual percentage of taxable income already deducted for losses incurred prior to Jan. 1, 2025, multiplied by the current year taxable income. This change will ultimately align Pennsylvania law with the federal NOL carryforward deduction limitation of 80% of a corporation’s taxable income.

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