Pennsylvania city tax rates come in two layers on top of the state’s flat 3.07 percent income tax: a local Earned Income Tax (EIT) set by your municipality and school district, and a flat Local Services Tax where you work. Most communities land at a combined EIT of about 1 percent, but the big cities run much higher. Pittsburgh’s combined local rate is 3 percent, and Philadelphia’s reaches 3.74 percent for residents.1Department of Revenue. Tax Rates The EIT applies to wages, salaries, commissions, and net profits from self-employment.
Who Owes the Local Earned Income Tax
If you live in a municipality or school district that has enacted an EIT, you owe the resident rate on everything you earn, no matter where in Pennsylvania your job is located. Your home rate follows you. If you also work in a taxing municipality, your employer compares your resident rate to the non-resident rate at your workplace and withholds whichever is higher.2PA Department of Community and Economic Development. Local Withholding Tax FAQs The employer sends the withheld amount to the tax collector for the work location, which then routes the resident share back to your home municipality.
If you live somewhere without a local EIT but commute into a taxing jurisdiction, you owe the non-resident rate to the municipality where you work.
Remote Workers
For employees who work from home, the home address is treated as the workplace for both EIT and Local Services Tax purposes. The resident municipality collects the full tax, and there is no separate non-resident obligation to a distant employer office. Splitting time between a home office and an office in a different municipality gets more complicated; ask your local tax collector how to allocate days.
Out-of-State Employers
Employers based outside Pennsylvania are not required to withhold local EIT. If your employer won’t withhold voluntarily, you are responsible for making quarterly estimated payments directly to the tax collector for your home municipality.2PA Department of Community and Economic Development. Local Withholding Tax FAQs Missing those payments is one of the most common ways Pennsylvania residents end up with surprise tax bills and penalties.
How the Rate Is Set in Your City
The Local Tax Enabling Act generally caps the combined EIT at 1 percent of earned income, split evenly between the municipality (0.5 percent) and the school district (0.5 percent). Many communities sit at exactly that 1 percent ceiling.3Pennsylvania General Assembly. Pennsylvania Local Tax Enabling Act
The exceptions drive the higher rates you see in the cities. Municipalities operating under a home rule charter or designated as financially distressed under Act 47 can set rates above 1 percent. Pittsburgh charges 1 percent for the city and 2 percent for the school district, a 3 percent combined rate.4City of Pittsburgh. Taxes Philadelphia sits under an entirely separate framework and runs higher still.
Income That Is Not Taxed Locally
The local EIT applies only to what Pennsylvania law considers earned income: wages, salaries, commissions, bonuses, and net profits from a business or profession. A wide range of income falls outside the tax:
- Retirement income, including Social Security benefits and distributions taken at age 59½ or older from 401(k) plans, IRAs, pensions, and similar accounts.
- Investment income such as interest, dividends, and capital gains. Business losses cannot be used to offset W-2 wages on your local return.
- Government benefits including unemployment compensation, public assistance, and disability insurance payments.
- Personal transfers such as alimony, child support, gifts, and death benefits.
- Military pay for active-duty service and certain training performed outside Pennsylvania.
Being retired doesn’t automatically exempt you. If you pick up part-time work or consulting that generates a W-2 or 1099-NEC, that income is taxable locally even if your pension and Social Security are not. Early distributions taken before age 59½ may also be taxable, depending on the plan.
Philadelphia’s Wage and Earnings Tax
Philadelphia operates under the Sterling Act of 1932, which gives the city independent authority to tax income outside the framework that governs the rest of the state.5Pennsylvania General Assembly. Sterling Act, Act No. 45 of 1932 The city’s tax on employee compensation is called the Earnings Tax when you owe it directly and the Wage Tax when an employer withholds it. Same obligation, different label.6City of Philadelphia. Earnings Tax (Employees)
The current rates are 3.74 percent for Philadelphia residents and 3.43 percent for non-residents who work within city limits.6City of Philadelphia. Earnings Tax (Employees) Both rates have declined slightly in recent years. Residents paid 3.75 percent and non-residents 3.44 percent as recently as 2024.7National Finance Center. Pennsylvania Local Income Tax Withholding Employers withhold and remit the tax directly to the Philadelphia Department of Revenue.
Because Philadelphia collects independently, the Wage Tax is not credited against other local EIT obligations the way ordinary local taxes are. Philadelphia also imposes a separate School Income Tax on unearned income like dividends, royalties, and certain rental income, which does not exist elsewhere in the state.
Refunds for Days Worked Outside Philadelphia
Non-residents whose employers withhold the Wage Tax on their full salary can claim a refund for days they physically worked outside city limits. You submit the request through the Philadelphia Tax Center with signed employer documentation verifying the dates and locations. Refund claims must be filed within three years of the date the tax was paid or due, whichever is later.8City of Philadelphia. Request a Wage Tax Refund
Self-Employed in Philadelphia
Self-employed Philadelphia residents and non-residents who earn business income within the city owe the Net Profits Tax instead of the Earnings Tax, at the same 3.74 percent resident and 3.43 percent non-resident rates. An annual return is due by April 15 even if the business ran at a loss, with estimated payments due April 15 and June 15, each equal to 25 percent of the prior year’s liability.9City of Philadelphia. Net Profits Tax
The Local Services Tax
The Local Services Tax (LST) is a flat-dollar charge, not a percentage of income, levied on anyone who works within a municipality that has adopted it. The maximum is $52 per year, regardless of how many taxing jurisdictions you work in during the year.10PA Department of Community and Economic Development. Local Services Tax (LST) Most employers deduct it from your paycheck in small increments throughout the year.
If your total earned income and net profits from all sources within the taxing municipality fall below $12,000 for the year, you are exempt from the LST in any jurisdiction that charges more than $10.10PA Department of Community and Economic Development. Local Services Tax (LST) Claiming the exemption typically requires filing a short form with the tax collector.
Self-Employment Outside Philadelphia
Self-employment income is taxable under the local EIT at the same rate that applies to wages. A 1 percent municipality charges 1 percent on net profits from your sole proprietorship, partnership, or LLC. You report using the same schedules you file with the IRS (Schedule C, Schedule E, Schedule F, or K-1 forms) and attach them to your local return.
Because no employer withholds on self-employment income, quarterly estimated payments are due April 30, July 31, October 31, and January 31. You cannot offset a business loss against W-2 wages on your local return; if your side business loses money but you also have a day job, you still owe local tax on your full W-2 compensation. You can offset a loss from one business against profits from another.
Finding Your Exact Rate
Every location in Pennsylvania has a six-digit Political Subdivision Code (PSD code) identifying the municipality, school district, and applicable rate. When you start a new job, your employer will ask you to complete a Residency Certification Form capturing your home address, municipality, school district, and PSD code.11PA Department of Community and Economic Development. Residency Certification Form Local Earned Income Tax Withholding Getting the code wrong sends your payment to the wrong jurisdiction, and you can end up with delinquency notices from the correct one while your money sits somewhere else.
The Department of Community and Economic Development runs a free address lookup that returns your PSD code, municipality, school district, and EIT rates for any street address in the state.12PA Department of Community and Economic Development. PSD Codes and EIT Rates Check it whenever you move, and again at filing time to confirm nothing has changed.
Filing, Payments, and Penalties
Even if your employer withholds local EIT from every paycheck, you still have to file an annual local return by April 15. The return reconciles what was withheld against what you actually owe, accounting for job changes, address changes, or additional income. When withholding was correct all year and nothing else changed, the return is often just uploading your W-2 to the collector’s online portal.
Self-employed workers and employees whose out-of-state employers do not withhold make quarterly estimated payments in place of payroll withholding, due April 30, July 31, October 31, and January 31. The annual return is still due April 15 to reconcile.13PA Department of Community and Economic Development. Local Income Tax Information
Unpaid local EIT accrues a penalty of 1 percent of the outstanding balance for each month or partial month it remains unpaid, plus interest of 6 percent per year on the unpaid amount.3Pennsylvania General Assembly. Pennsylvania Local Tax Enabling Act The monthly penalty is capped at 15 percent of the tax owed, but interest keeps accumulating without a cap until the balance is paid.
Persistent nonpayment can escalate. Tax collectors can sue for the unpaid tax plus penalties, interest, and collection costs, and in serious cases a lien can be placed against your property. File on time even if you can’t pay in full; the penalty for not filing is worse than owing a balance on a timely return.