The Philadelphia Wage Tax applies to all employees working in the city. Residents pay 3.87%. Non-residents pay 3.5%. The tax funds city services. New Jersey residents can claim a tax credit.
Tax Rates and Compliance
In 2023, tax rates will decrease. Residents will pay 3.8398%. Non-residents will pay 3.4481%. Employers must withhold and remit the Wage Tax for Philadelphia employees.
All residents owe the Wage Tax regardless of work location. The tax applies to all forms of compensation. This includes salaries, wages, and commissions.
Refunds and Exceptions
To get a refund, file a Reconciliation Form. Show any overpayment. Processing takes 6-8 weeks.
Employers give refund forms by February 1. Anyone can download the form. If you work from home outside Philadelphia, you don’t pay the tax. File by mail. Instructions are online.
The City of Philadelphia reached a settlement for employees working outside Philadelphia for extended periods. They are not required to pay wage tax on wages attributable to work outside the City.
Working from Home and Tax Eligibility
What is Philadelphia income Based Rate? If you are eligible, residents pay 3.3712%, non-residents 2.9481%. The income-based rates are 0.5% lower than standard rates.
Suburban residents who are now working from home may be eligible for relief from the city wage tax. Nonresident employees working remotely for the convenience of their employer are subject to Wage Tax.
Once restrictions have been lifted by an employer, non-resident employees are subject to the city wage tax again.
Businesses with remote employees working in Pennsylvania could have tax obligations. The home location must be the work location for sourcing compensation.
Historical Perspective and New Jersey Residents’ Obligations
Why does Philly have a wage tax? Philadelphia enacted the first city wage tax in 1939 to pay for public services.
What taxes do I pay if I live in NJ and work in Philadelphia? New Jersey residents can claim a credit for the Philadelphia wage tax.