Quick Summary
A Pittsburgh City Council member introduced an ordinance on October 27, 2026 that would impose a 2% tax on residents’ net unearned income, including dividends, rentals, property gains, royalties and trust and estate distributions, beginning January 1, 2027. Several parts of the ordinance need clarification, and there is real uncertainty about whether Pittsburgh can enact the tax under existing state law.
On October 27, 2026, a member of Pittsburgh City Council formally introduced an ordinance to supplement the City Code by proposing to add new Chapter 248 to Title 2, Article VII that would subject the “net unearned income” of Pittsburgh city residents to a tax at a rate of 2%. The bill was read, then referred to the Committee on Finance and Law for further review.
What the Ordinance Would Tax
Already being referred to as a “fair share tax,” if the ordinance is passed it would subject Pittsburgh residents to tax on the following five types of income beginning January 1, 2027:
- Dividends
- Rentals (net of reasonable operating costs and expenses)
- Gains from the sale of property
- Royalties
- Trust and estate distributions
How S Corporation and Trust Distributions Are Treated
Dividend income includes distributions made by S corporations, including S-Corp distributions of prior C-Corp earnings and profits. Note that net unearned income from an S corporation is not considered to be “treated as ‘received or credited’” until “actually distributed.”
When it comes to distributions from trusts and estates, there are several additional rules that apply, including but not limited to:
- The domicile of the beneficiary – and not of the estate or trust – determines liability for the tax.
- In general, taxable income would include all distributions paid to any beneficiary from trusts and estates.
- The income distributed from the estate or trust to the beneficiary retains its character as if the beneficiary directly made the investment generating the income.
- The income of any trust or estate of which such person is the “substantial owner” would be taxed even if not distributed. The definition and rules related to a substantial owner follow federal tax rules established in the Internal Revenue Code.
What Is Excluded
Income specifically excluded from taxation under the proposed ordinance includes:
- Interest
- Income from funds and trusts investing in government securities
- Old age, retirement, and pension benefits
- Sick pay and disability benefits
- Workmen’s compensation and unemployment benefits
- Active military service pay and bonuses for active military service
- Death benefits
- Proceeds from insurance policies
- Gifts and bequests
- Compensatory damages due to personal injury or property damage
- Individual retirement accounts, tax deferred annuities, profit sharing, KEOGH, and similar plan distributions
Losses and Deductions
Similar to Pennsylvania law, losses from sale of property could only be used to offset gains realized within the same tax year. Losses from one class of income would not be available to offset income from a different class. Certain reasonable costs and expenses directly incurred in and solely for the production of taxable unearned income will be deductible.
Areas That Need Clarification
There may be some areas of the ordinance that need additional clarification and guidance when it comes to tax treatment.
For example, income flowing through from partnerships is not specifically addressed. It may be intended that flowthrough income retains the same characteristics for its partners as it does for the partnership, similar to the specific rules provided for beneficiaries of estates and trusts, but that assumption may need additional clarification from the City of Pittsburgh.
Also, income earned by limited partners in a trade or business where the recipient is a non-active investor is not included in the definition of unearned income.
Additionally, the treatment of gains from the sale of a principal residence in Pittsburgh may be taxable under the proposed ordinance. This gain is not specifically excluded from the definition of gains that includes “all gains from the sale, exchange or other disposition of real estate.”
Finally, the proposed ordinance subjects all S corporation distributions to taxation, apparently even generated from income earned before the implementation of the ordinance, thereby subjecting income earned by the S corporation prior to January 1, 2027, to retroactive taxation when distributed.
Filing Requirements
The ordinance calls for “necessary filers” to file a return, a distinction that includes city residents who receive any income subject to tax and “every trustee executor, administrator, or other fiduciary of a trust or estate that distributes income to a city resident.” This second requirement appears to require trusts and estates that have no nexus to the City of Pittsburgh – other than by a beneficiary being allocated income – to file a return.
Note that S corporations have no filing obligation with the City of Pittsburgh, so it is not clear how distributions from those corporations will be identifiable to Pittsburgh tax authorities.
Can Pittsburgh Enact This Under State Law?
Pennsylvania tax theorists are questioning whether this ordinance can be passed under existing state law. The argument swings on whether Pittsburgh, or any Pennsylvania municipality, has explicit legislative authority under Pennsylvania Act 511, the Local Tax Enabling Act, to tax unearned income, legislation that dictates what municipalities can and cannot tax. Both sides are basing their positions on interpretations of statutory authority and constitutional requirements. Supporters of the tax believe the current state legislation is broad enough that Pittsburgh City Council can enact the ordinance without having the state legislature change existing law. Others following the debate believe that current state law provides a strict restriction against expanding local income taxes to include unearned income in the tax base.
We can safely say that, as of today, there is real uncertainty as to whether Pittsburgh can unilaterally act to tax unearned income. Any change in current law is likely to be challenged, but given the effective date of enactment of January 1, 2027, it is not clear whether the issue can be settled by that date.
Schneider Downs will follow the issue closely and provide updates on a regular basis.
Schneider Downs Tax Advisors run one of the largest regional tax practices in the country, pairing deep technical knowledge with a personal focus on every client. From proposed local tax changes to individual, trust and estate planning, we turn complex change into practical, implementable strategy. To learn more, visit our Tax Services page or contact us, or email us directly.
