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.
We want to draw attention to the city income tax. Don’t roll your eyes and ignore it as that could easily turn out to be an expensive mistake. Here is a quick rundown of what you need to know.
Philadelphia City Income Taxes to Know
If you are just hearing about Philadelphia city income taxes for the first time, there are a bunch of taxes both businesses and individuals are responsible for filing. They range from an employee earnings tax to a school income tax.
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 3.8809% and non-residents owe 3.4567% (2018 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 6.35% on your net income (2018 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 2018 tax year, if you live here, you have to pay 3.8809% of your net income. Visitors are responsible for 3.4567%. 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. 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 2018 tax year is 3.8809%. The filing deadline is April 15.
Who Needs to Pay Philadelphia Taxes
Now that you know about each tax, you may be wondering if you are responsible for paying any of them. If you are not sure, start by asking 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.
Next, consider your income. If you are a contract worker 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 that earned income.
As you may suspect, all 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.
What Happens if You Don’t File
While it may be tempting to blow off filing or paying Philadelphia taxes, this is a mistake. Ignoring these taxes won’t make them go away. You will be stuck paying 6% interest and a 1.25% penalty for every month you are late.In a worst-case scenario, after several warnings, the sheriff could show up with a code enforcement complaint. A complaint can surface any time you fail to file taxes but is usually a result of several years of non-filing. It’s up to the city to decide when they want to use it.
The fine for this type of code enforcement complaint is $5,000.
The Bottom Line
When it comes to paying taxes, it’s normal to feel overwhelmed. If your to-do list is overflowing, and crunching numbers puts you to sleep, you can always hire a CPA to help with your taxes. Easing the burden of taxes is what they do best.