Philadelphia Wage Tax: Who Pays, Remote Work, and Refunds

The Philadelphia Wage Tax is a local income tax on compensation earned by anyone who lives in the city or physically works within its boundaries. As of July 1, 2025, the rate is 3.74% for residents and 3.43% for non-residents.¹ Residents owe it on every dollar of pay regardless of where their employer sits; non-residents owe it only on the days they physically work inside the city.² Rates change each July 1 and have been trending down, so your effective annual rate is a blend of the pre-July and post-July numbers.

Who Owes the Tax

If you live in Philadelphia, the tax applies to your full paycheck. It does not matter whether your employer is in Center City, Cherry Hill, or Denver. Your residency is what triggers the obligation.²

If you live outside the city, you owe the tax only for time you spend physically working inside city limits. A commuter who is in the office three days a week and works from home the other two should be taxed on the three in-office days. The city cares about where you are sitting when you do the work, not where your company is headquartered.²

Active-duty military pay is fully exempt. Scholarships tied to a degree program are exempt as long as you don’t perform services in return. Students who hold regular Philadelphia jobs still owe the tax on those wages.³

What Counts as Taxable Pay

Salaries, wages, bonuses, commissions, and tips are all taxable. The surprise for most people is how Philadelphia treats pre-tax payroll deductions. Unlike federal income tax, the Wage Tax does not exclude your 401(k) contributions, HSA contributions, FSA contributions, or Section 125 cafeteria-plan deductions for medical, dental, and vision premiums. If you defer $10,000 into your 401(k), the IRS knocks that off your taxable wages but Philadelphia taxes the full $10,000.⁴

Employer contributions on your behalf are a different story. When your company pays part of your health premium or matches your 401(k), that money isn’t taxed as your wages, provided the plan doesn’t exclude certain employees.⁴

Income That’s Exempt

Pension distributions
Workers’ compensation benefits
Active-duty military pay and bonuses
Sick or disability insurance payments
Juror fees
Scholarships tied to a degree program where no services are performed

The full list of exclusions is in Section 104 of the city’s income tax regulations, which is the place to check if your income is unusual.⁴

When You Have to Pay It Yourself

Most employers withhold the Wage Tax automatically and send it to the city. Any employer with a Pennsylvania location is required to.³ Out-of-state employers with no Pennsylvania presence are not. If you live in Philadelphia and work remotely for a company in Texas, nothing is being withheld on your behalf, and the responsibility lands on you.¹

In that situation you file the Earnings Tax, which is the same tax at the same rate under a different name. It’s paid quarterly with an annual reconciliation due April 15 for the prior year. Missing the quarterly deadlines triggers penalties and interest, so put them on the calendar.¹

Freelancers and the Self-Employed

If you’re a freelancer, independent contractor, or sole proprietor, this isn’t your tax. You owe the Net Profits Tax instead, which applies to net income after business expenses rather than gross pay. Residents owe it on all business income; non-residents owe it only on business conducted inside the city. Most self-employed Philadelphians also owe the Business Income and Receipts Tax, and a Net Profits Tax return is required even in a loss year.⁵

The Remote Work Rule for Non-Residents

Since remote work went mainstream, the city has issued specific guidance on when a non-resident’s work-from-home days are taxable. The test is whether you’re home because your employer requires it or because you prefer it.

If your employer requires you to work outside the city, those remote days are not subject to the Wage Tax. If your employer keeps a Philadelphia office available and lets you choose whether to come in, every work day is taxable, including the days you spent at home.⁶

This is where refund claims fail. Working from home to handle childcare counts as your convenience and stays taxable. Simply having a desk available at the Philadelphia office is enough for the city to treat your remote work as voluntary. The only reliable ground for a refund on remote days is a written employer policy that specifically requires them.⁶

Refunds for Non-Residents

Non-residents who had tax withheld on days worked outside Philadelphia can petition for a refund. You’ll need to document each day’s work location and get your employer to verify the record.

Three documents do most of the work:

Your W-2, with Boxes 18 and 19 showing local wages and local tax withheld.
The city’s dates-and-locations worksheet, where you log each day’s work location, plus an employer certification confirming the entries.⁷
For any remote days claimed, a signed letter on company letterhead stating that the remote work was required.⁶

The math is proportional. Divide your out-of-city work days by total work days, and apply that percentage to the tax that was withheld. Someone who spent 120 days in Philadelphia and 130 days at qualifying remote work could recover roughly 52% of what was taken.

Income-Based Refunds for Low Earners

Philadelphia offers a separate refund for low-income residents and non-residents. Qualifying filers get a reduced 1.5% rate applied retroactively, with the difference refunded. On the current 3.74% resident rate, that returns more than half the tax.⁸

Eligibility runs through Pennsylvania’s tax forgiveness program. File your state return with a PA Schedule SP (Special Tax Provisions) and get approved first. Then send the city your petition along with your W-2 showing Philadelphia local wages and Medicare withholding, your PA-40, and your approved Schedule SP. The city won’t process an income-based petition without the state documents attached.⁸

Submitting a Refund and Meeting the Deadline

Refund petitions go through the Philadelphia Tax Center, the city’s online portal. You can upload documents without creating an account, though an account makes it easier to track status.⁹

Normal processing runs six to eight weeks, longer if you file close to the April 15 crunch. Filing in February or early March generally clears faster.⁹

You have three years from the date of payment or the due date, whichever is later, to file. After that, the city has no obligation to return the money even if you clearly overpaid.¹⁰

If the Department of Revenue denies your petition, you have 90 days from the denial to appeal to the Tax Review Board. Appeals can be sent by email, fax, or mail, but the original signed petition must reach the Board at 100 South Broad Street, Room 400, Philadelphia, PA 19110. A hearing follows within roughly 90 to 120 days, and a further appeal goes to the Philadelphia Court of Common Pleas.¹¹

Penalties and Interest on Late Payments

Late payment triggers both interest and a penalty, running together. For calendar year 2026, interest is 9% per year, or 0.75% of the balance per month. On top of that, the city adds a penalty of 1.25% of the unpaid tax for each month or partial month the balance is outstanding.¹²

Together that’s about 2% per month on the unpaid balance. On a $2,000 bill, roughly $40 a month accrues until it’s paid. A bounced check adds a flat $20 fee. The penalty rate has held at 1.25% since 2014; the interest rate resets each year based on the federal short-term rate plus five percentage points.¹³

1
City of Philadelphia. Earnings Tax (employees)
2
City of Philadelphia. City of Philadelphia Income Tax Regulations
3
City of Philadelphia. Wage Tax (employers)
4
City of Philadelphia. What types of income are not subject to the Wage Tax?
5
City of Philadelphia. Net Profits Tax
6
City of Philadelphia. Philadelphia Wage Tax policy guidance for non-resident employees in the era of remote work
7
City of Philadelphia. Wage Tax refund form (salaried employees)
8
City of Philadelphia. Do you qualify for Philly’s income-based Wage Tax refund?
9
City of Philadelphia. Request a Wage Tax refund
10
City of Philadelphia. General Regulations Relating to Taxes and Other Revenues
11
City of Philadelphia. Petition for a tax appeal
12
City of Philadelphia. Interest, penalties, and fees
13
City of Philadelphia. Annual Reconciliation of 2025 Employee Earnings Tax Instructions