If you are a resident of Philadelphia, you probably know a thing or two about taxes. On top of federal and state taxes, Philadelphians pay extra for alcohol, sweetened beverages, owning a dog, and sporting events. You can learn more about the full range of city taxes on the City of Philadelphia website.
Who Needs to Pay Philadelphia City Taxes
To figure out whether you need to pay Philadelphia taxes, ask yourself a couple of basic questions:
- Do I live in the city?
- Do I work in the city?
If you check either of those two boxes, you are on the hook for Philadelphia city income taxes.
NOTE: The city of Philadelphia issued new wage tax policy guidance on November 4th, 2020 as a result of the COVID-19 pandemic. If you were told to work from home by your employer in 2020, you do not have to pay the Philadelphia city wage tax. Learn more in our COVID-19: Tax Implications for Philadelphia Residents and Workers post.
Here is a quick rundown of what else you need to know about Philadelphia taxes.
Philadelphia City Income Taxes to Know
These are the main income taxes:
- City of Philadelphia Wage Tax – This is a tax on salaries, wages, and other compensation. City residents have to pay 3.8712% and non-residents who work in the city owe 3.5019% (2020 tax year). The deadline is weekly, monthly, semi-monthly, or quarterly depending on the amount of Wage Tax you withhold.
- The Business Income and Receipts Tax (BIRT) was formerly known as the Business Privilege Tax (BPT) – You are basically being taxed for the privilege of doing business in the city of Philadelphia. “Every individual, partnership, association, limited liability company (LLC), and corporation engaged in a business, profession, or other activity for profit within the City of Philadelphia must ﬁle a Business Income & Receipts Tax (BIRT) return”. You are responsible for paying 1.415% per $1,000 of gross income (before expenses) and 6.30% on your net income (2020 tax year). There is a statutory exemption for the first 100,000 of gross receipts which effectively reduces the amount you will owe. The deadline is April 15.
- Net Profits Tax (NPT) – This is another business tax based on the net profits from the operation of a trade, business, profession, enterprise, or other activity. Philadelphia residents and non-residents who do business in the city should expect a bill. For the 2020 tax year, if you live here, you have to pay 3.8712% of your net income. Non-residents are responsible for 3.5019% (2020 tax year). The deadlines are April 15 and June 15.
- School Income Tax (SIT) – This is a type of property tax for certain types of passive income. This includes income from your investments, certain business distributions, and net income from rental duplexes. Interest income earned from banks, credit unions, or savings & loan investments is exempt. If you earn these types of income, you will need to file a return and submit the taxes due. The school tax rate for the 2020 tax year is 3.8712%. The filing deadline is April 15.
Next, consider your income. If you are a contract worker in the city who receives a year-end 1099 form, you need to file both the BIRT and NPT. Employees could be responsible, as well. If your employer doesn’t withhold and file city taxes for you, expect to receive a bill.
Individual workers who travel to Philadelphia temporarily — like professional athletes and entertainers — also have to pay tax on the money they earn while working in the city. If you are a speaker at a conference or a politician giving a speech in the city, you are also responsible for filing and paying taxes on the income you earn while in the city.
As you may suspect, all city businesses – sole proprietors, partnerships, c-corporations, and s-corporations – are required to file a tax return with the city whether they make money or not. This is also true (you must still file) even if your business does not owe any taxes.
Who Doesn’t Need to File
While it may seem like almost everyone has to file, there are a few exceptions:
- You don’t live or work in Philadelphia – If you live and work outside the city, you are not responsible for filing a city tax return.
- You are a W-2 employee – As we have mentioned, you are also safe if your employer pays city tax on your behalf. This is common for W-2 employees, but you should always double-check.
- Your only income is a pension or Social Security – These types of income don’t require a Philadelphia city tax return.
- You are a non-resident worker for a Philadelphia-based business who was told to work from home in 2020 – This is new for the 2020 tax year and a result of COVID-19. The city issued Wage Tax Policy Guidance in November 2020 that states non-resident workers are “not subject to Philadelphia Wage Tax during the time they are required to work outside of Philadelphia… Under this standard, a nonresident employee is not subject to the Wage Tax when the employer requires him or her to perform a job outside of Philadelphia including working from home. “.
We’ll have to keep our eye on this last exception and see if the rules change when 2021 tax year rolls around. For now, at least, some of us are getting a well-deserved break.
Last Updated: 03/18/2021