The Pennsylvania surplus lines tax is a 3% levy on gross premiums for insurance placed with non-admitted insurers when admitted carriers decline the risk. The licensed surplus lines producer collects the tax from the insured, files monthly activity reports with the Pennsylvania Surplus Lines Association (PSLA), and remits the annual tax to the Department of Revenue by January 31 for the prior calendar year.1Pennsylvania General Assembly. Pennsylvania Code Title 40 P.S. Insurance – Surplus Lines Tax
The 3% Rate and the Separate Stamping Fee
Under 40 P.S. § 991.1621, the tax is 3% of gross premiums minus any return premiums. It sits on top of the premium the insurer charges, so a $50,000 policy generates $1,500 in tax. The producer collects the tax from the insured when the policy is delivered.1Pennsylvania General Assembly. Pennsylvania Code Title 40 P.S. Insurance – Surplus Lines Tax
A separate PSLA stamping fee applies to each filing. It is a flat amount, not a percentage. Filings received within 45 days of the policy’s effective date carry a $20 fee. Filings received after 45 days carry a $45 fee. A $70 fee applies when a timely filing is missing the required producer affidavit.2Pennsylvania Surplus Lines Association. Stamping Fee FAQ Both the tax and the stamping fee must appear as separate line items on the policy’s declaration page.
Lower Rate for Risk Retention Groups
Coverage placed with a risk retention group that qualifies as an eligible surplus lines insurer is taxed at 2% of gross premiums rather than 3%. The lower rate reflects the different regulatory structure these entities operate under.1Pennsylvania General Assembly. Pennsylvania Code Title 40 P.S. Insurance – Surplus Lines Tax
Diligent Search Before Placement
Before placing any coverage in the surplus lines market, the producer must document that admitted carriers will not write it. Pennsylvania regulation requires declinations from at least three admitted insurers that write comparable coverage in the state. Each declination must be recorded in writing with the insurer’s name, contact person, date of contact, and reason. If an admitted insurer does not respond within five business days, that silence counts as a declination, provided the producer records how and when the contact was made.3Legal Information Institute. 31 Pa. Code 124.5 – Diligent Search of Admitted Insurers
Two anti-gaming rules apply. A declination from one admitted insurer cannot be paired with a declination from that insurer’s affiliate unless the affiliates underwrite independently with separate criteria. And the surplus lines placement itself cannot go to a non-admitted insurer that is an affiliate of an admitted carrier that already declined the risk. Declination records must be kept for at least five years after the policy terminates.3Legal Information Institute. 31 Pa. Code 124.5 – Diligent Search of Admitted Insurers
Certain large commercial buyers can skip the search. Under 40 P.S. § 991.1610, an “exempt commercial purchaser” avoids the diligent search when the producer discloses that admitted-market coverage might be available with greater regulatory protection and the purchaser then requests in writing that the producer place the coverage with a non-admitted insurer. Qualifying entities include municipalities with populations above 50,000 and nonprofits or public entities with annual budgeted expenditures of at least $30 million, among other criteria.4Pennsylvania General Assembly. Pennsylvania Code Title 40 P.S. Insurance – Exempt Risks
Monthly Reports to the PSLA
Surplus lines producers file monthly reports with the PSLA through its Electronic Filing System (EFS). Under Section 1620, a signed report covering all Pennsylvania surplus lines premium activity from the previous month is due within 30 days of that month’s end. Months with no transactions still require a report showing $0 in premiums. Because these monthly figures feed the annual tax calculation, the totals across the twelve monthly reports must match the annual return.5Pennsylvania Surplus Lines Association. 1620 Report – Pennsylvania Surplus Lines Association
Annual Filing and Payment
The annual return is Form RCT-123, the Gross Premiums Tax Report for Surplus Lines Agents. It requires a breakdown of total gross premiums, return premiums, any tax-exempt premiums, and the resulting tax owed. Producers file the form and remit the tax to the Pennsylvania Department of Revenue by January 31 for the preceding calendar year.6Pennsylvania Department of Revenue. Surplus Lines Agents Tax
The RCT-123 can be filed electronically through the Department of Revenue’s myPATH portal at mypath.pa.gov. A signed copy of the RCT-123 along with all twelve monthly 1620 reports must also be submitted to the PSLA through the EFS. Producers needing more time can request a 60-day extension electronically through myPATH or by filing Form REV-426.7Pennsylvania Department of Revenue. RCT-123 Gross Premiums Tax Report for Surplus Lines Agents
Payments of $1,000 or more must be made electronically or by certified or cashier’s check delivered in person or by express mail courier. Using an unapproved payment method triggers a 3% penalty on the tax due, capped at $500. The myPATH portal handles electronic funds transfers and generates a confirmation receipt.7Pennsylvania Department of Revenue. RCT-123 Gross Premiums Tax Report for Surplus Lines Agents
When the Insured Pays the Tax Directly
If a Pennsylvania-domiciled insured obtains coverage directly from a non-admitted insurer without using a licensed surplus lines producer, the 3% tax still applies. The reporting and payment obligation shifts to the insured. Under Section 1622, the insured must file a report and remit the 3% tax within 30 days after the end of the month in which the insurance was procured, continued, or renewed, using the same format required of producers.8Pennsylvania Surplus Lines Association. Pennsylvania Surplus Lines Law Missing that deadline triggers penalties under the Tax Reform Code of 1971. The 30-day window is significantly tighter than the January 31 annual deadline that applies to producer-placed policies.
When Pennsylvania Is the Taxing State
The Nonadmitted and Reinsurance Reform Act (NRRA), enacted as part of the Dodd-Frank Act in 2010, prevents multiple states from taxing the same surplus lines policy. Only the insured’s home state may collect the tax.9National Association of Insurance Commissioners. Nonadmitted Insurance Reform Sample Bulletin
The home state is generally where the insured maintains its principal place of business, or for an individual, the state of principal residence. If 100% of the insured risk sits outside that state, the home state instead becomes whichever state receives the greatest share of allocated premium. For affiliated groups covered under a single policy, the home state is set by the member with the largest premium allocation.
A company headquartered in Pennsylvania with property spread across several states pays the full 3% to Pennsylvania as the home state. A company headquartered in New Jersey with a small Pennsylvania exposure pays New Jersey, and Pennsylvania collects nothing. The home state may require an annual tax allocation report showing the multi-state breakdown, but Pennsylvania does not share the collected revenue with other states.
Government Placements Are Exempt
The Department of Revenue has determined that premiums charged to the Commonwealth of Pennsylvania and its political subdivisions, including counties, municipalities, and school districts, are exempt from the surplus lines tax. This is an administrative determination rather than a statutory exemption; the enabling statute itself provides no express exemptions.6Pennsylvania Department of Revenue. Surplus Lines Agents Tax Producers handling government placements must still complete the diligent search and file the required reports. Only the tax obligation is waived.
The Tax Does Not Buy Guaranty Fund Protection
Surplus lines insurers are not licensed by the Pennsylvania Insurance Department, so they are not covered by the Pennsylvania Property and Casualty Insurance Guaranty Association. If a surplus lines insurer becomes insolvent, outstanding claims will not be paid by the guaranty fund.10Pennsylvania Insurance Department. Surplus Lines Companies Filing Information The state maintains an approved list of eligible surplus lines insurers that meet minimum financial standards, but eligibility is not a guarantee. The financial strength of the insurer is the backstop.