What Is the Philadelphia City Wage Tax?

The Philadelphia City Wage Tax is a local income tax imposed by the City of Philadelphia on earned income, serving as a significant funding source for municipal services. This tax applies to individuals who either live or work within the city’s boundaries. It represents a distinct financial obligation separate from federal and state income taxes.

Understanding the Philadelphia Wage Tax

The Philadelphia City Wage Tax is levied on salaries, wages, commissions, and other forms of compensation earned by individuals. It plays a substantial role in the city’s financial framework, primarily supporting various public services and infrastructure projects within Philadelphia. Unlike state or federal income taxes, it is a municipal-level assessment.

Who is Subject to the Tax and What Income is Taxable

The applicability of the Philadelphia City Wage Tax depends on an individual’s residency and where their income is earned. Philadelphia residents are subject to the tax on all earned income, irrespective of where that work is performed; this means if a resident works outside the city, their wages are still taxable by Philadelphia. Conversely, non-residents who work within Philadelphia are taxed only on the income earned from services performed inside the city’s geographic limits.

Taxable income encompasses various forms of compensation received from an employer for work or services. This includes wages, salaries, and commissions. Additionally, net profits derived from businesses, professions, or other activities conducted in Philadelphia are also subject to this tax. Other forms of compensation, such as bonuses or severance pay, are included in the calculation of taxable earnings.

Calculating and Paying the Tax

The Philadelphia City Wage Tax is calculated as a percentage of gross taxable income, with differing rates for residents and non-residents. For instance, as of July 1, 2025, the rate for residents is 3.74%, while for non-residents, it is 3.43%. Taxpayers should consult the official City of Philadelphia Department of Revenue website to find the most current tax rates.

For most employees, the tax is primarily paid through employer withholding, where the employer deducts the tax directly from paychecks and remits it to the city. Self-employed individuals and business owners, however, are typically required to make quarterly estimated tax payments to fulfill their obligation. All taxpayers must engage in an annual reconciliation process, with the fourth-quarter payment often serving as the final reconciliation for the year. The Philadelphia Tax Center, an online portal, is the designated platform for filing returns and making payments, as paper returns for this tax are not accepted.

Common Scenarios and Special Rules

Remote work arrangements for non-residents introduce specific considerations for the Philadelphia City Wage Tax. If a non-resident works remotely outside Philadelphia at the employer’s requirement, those wages are generally not subject to the tax. However, if the remote work is for the employee’s personal convenience, the wages may remain subject to the tax, following the “convenience of the employer” rule.

For individuals who earn net profits from a trade, business, or profession conducted in Philadelphia, the Net Profits Tax (NPT) applies. This tax is assessed on the net profits, with rates often mirroring the wage tax rates for residents and non-residents. Estimated NPT payments are typically due in two installments. Taxpayers may be eligible for a wage tax refund in certain situations, such as non-residents whose employers over-withheld for time worked outside the city. Refund requests must be filed through the Philadelphia Tax Center.