As part of the City’s continuing efforts to improve its economic competitiveness, starting July 1, 2017, the City’s Wage Tax rate is reduced to 3.8907 percent for residents and 3.4654 percent for nonresidents. Any paycheck that businesses issue with a pay date after June 30, 2017 must have Philadelphia City Wage Tax withheld at the new rate.
At its height, the Philadelphia City Wage Tax reached 4.96 percent in 1985. Since the mid-1990s, Philadelphia mayors have steadily whittled the number down. Mayor Kenney and City Council have committed to continuing gradual reductions to the City Wage Tax rates to make Philadelphia more competitive. The tax rate is now at its lowest level in decades. Although incrementally small, over time the rate decreases result in meaningful tax reductions for Philadelphians. From its highest point to the latest rate change, the long-term commitment to lowering the City Wage Tax rate results in $406 back in the pocket of a family earning $38,000 a year.
“If we want to be successful in attracting, retaining and growing businesses, Philadelphia must have a multi-tiered approach,” said Director of Commerce Harold T. Epps. “The continuing reduction of the City Wage Tax will not only benefit individuals who live and work in Philadelphia, but businesses that employ them as well. We are working every day to make Philadelphia a more business-friendly city, and this is one of the many steps we are taking.”
This reduction is part of a long-term initiative to reduce the Wage Tax for residents and nonresidents to their lowest rates in 40 years by 2022. By Fiscal Year 2022, Philadelphians can expect the Wage Tax rate to decline to 3.6997 percent for residents and 3.2953 percent for nonresidents.
A report from Pew Charitable Trusts released in 2016 found that the tax disadvantage of living in Philadelphia has dropped to its lowest point in 15 years, making the city more affordable in terms of taxes than many of the surrounding suburbs. In 2000, the average gap between the city and suburbs was 3.7 percentage points, and in 2015 that number shrunk to 0.6 percentage points. Of the 355 municipalities included in the Pew analysis, Philadelphia’s tax burden was lower than 96 locations in Pennsylvania and southern New Jersey.
The new City Wage Tax rates are 3.8907 percent for residents and 3.4654 percent for nonresidents, compared to the current rates of 3.9004 percent for residents and 3.4741 percent for nonresidents. This rate change, effective July 1, also applies to:
Earnings Tax (for Philadelphia residents who work outside of Pennsylvania and don’t have the Wage Tax withheld from their paycheck)
• Net Profits Tax (on the net profits from the operation of a trade, business, profession, or enterprise)
• School Income Tax (for Philadelphia residents who have unearned income like annuities, short-term rental income, and cash lottery winnings)
Questions about the rate change should be directed to the Department of Revenue. Businesses can email [email protected] or call 215-686-6600.