The City of Philadelphia has announced reduced tax rates for its:
- Business Income and Receipts Tax (BIRT)
- Wage Tax
- Earnings Tax
- Net Profits Tax (NPT); and
- School Income Tax (SIT).
Changes to the Wage and Earnings tax rates become effective July 1, 2022. The new NPT and SIT rates are applicable to income earned in Tax Year 2022, for returns due and taxes owed in 2023. The new BIRT income tax rate becomes effective for tax year 2023, for returns due and taxes owed in 2024.
Wage and Earnings taxes
Starting on July 1, the new resident rate for the Wage and Earnings taxes is 3.79%. The rates were previously 3.8398%. The new non-resident rates will be a flat 3.44% for Wage Tax and 3.44% for Earnings Tax – they were previously 3.4481%.
Employers must begin withholding Wage Tax at the new rate from all paychecks issued to residents and non-residents after June 30, 2022.
Both Wage and Earnings taxes apply to salaries, wages, commissions, and other employee compensation. They are two sides of the same coin; the only difference is how the taxes are collected and paid to the City of Philadelphia.
Your employer withholds the Wage Tax from your paycheck and remits it to the City on your behalf. The Earnings Tax is self-pay and file – if your employer doesn’t collect and pay the Wage Tax for you, you must file and pay the tax for yourself through the Philadelphia Tax Center.
Net Profits Tax
Likewise, the City’s Net Profits Tax (NPT) is decreasing for residents and non-residents. The NPT is tax paid on the net profits you earn from your trade, business, profession, or other for-profit activities conducted in Philadelphia. The new NPT rates are:
- 3.79% for residents, and
- 3.44% for non-residents.
These new rates will apply for net profits earned in 2022.
Keep in mind that whether you earn profit or not, you must still file the NPT to avoid interest and penalties.
Business Income and Receipts Tax (BIRT)
For Tax Year 2023, the net income portion of the BIRT will drop to 5.99% from its current 6.20% rate. This rate becomes effective for tax year 2023, for returns due and taxes owed in 2024.
School Income Tax
The School Income Tax rate is also changing. As of July 1, 2022, the rate for residents will be 3.79% (previously 3.8398%). The new rate will apply to all applicable unearned income received in Tax Year 2022 (January through December 2022).
If you are a resident of Philadelphia who receives certain types of unearned income (such as royalties, rental income), this tax applies to you. Read the School Income Tax regulations for a full list of taxable income types. Non-residents do not pay the School Income Tax.
