The Philadelphia wage tax is a local income tax on earned income for anyone who lives in the city or physically works there. As of July 1, 2025, the rate is 3.74% for residents and 3.43% for non-residents, and the city has committed to gradual reductions in the years ahead.1City of Philadelphia. Wage Tax (Employers) Self-employed people who earn income in the city pay the same percentages through the Net Profits Tax.2City of Philadelphia. Important Reminders for Taxpayers
Who Owes the Tax
If you live in Philadelphia, every dollar of your earned income is taxable, no matter where your employer sits. Commuting to King of Prussia, working for a New York company from home, or taking a job in New Jersey does not change the answer. All of it is subject to the resident rate.1City of Philadelphia. Wage Tax (Employers)
If you live outside the city but work inside it, you owe the non-resident rate on the income you earn while you are physically present in Philadelphia. A suburban resident who spends three days a week in a Center City office and two days at home only owes the tax on the three in-office days. Employers are the ones legally on the hook for withholding correctly.1City of Philadelphia. Wage Tax (Employers)
Remote Work and the Requirement of Employment Rule
This is where non-residents run into the most trouble. The city’s Department of Revenue applies what it calls the “Requirement of Employment” test. If your employer requires you to work from a location outside Philadelphia, the pay for those days is not taxable. If your employer merely allows or permits remote work and you choose to take it, the compensation stays fully taxable as though you had been at your Philadelphia desk.3City of Philadelphia. Wage Tax Policy Guidance for Non-Resident Employees Required versus permitted is the whole test.
To recover tax withheld for days you worked outside the city under a requirement, you file a refund petition after the tax year ends. The city expects an employer certification letter on company letterhead, signed by an authorized official, breaking the year into two halves (January through June and July through December) and listing total available workdays, non-workdays such as vacation and sick leave, actual workdays, and days your employer required you to work outside Philadelphia. Electronic signatures are accepted. A petition filed without this letter goes nowhere.4City of Philadelphia. Wage Tax Refund Employer Certification Letter Template
What Income Is Taxed
The tax hits salaries, hourly wages, bonuses, commissions, tips, and other compensation for work or services.1City of Philadelphia. Wage Tax (Employers) Vacation pay and severance are generally taxable because they arise from the employment relationship. Passive income, meaning interest, dividends, and capital gains, is not.
The city treats every payment you receive as taxable unless the regulations specifically exclude it.5City of Philadelphia. What Types of Income Are Not Subject to the Wage Tax? The excluded categories are:
- Pension payments received after you stop working
- Workers’ compensation benefits
- Active military pay and bonuses
- Sick or disability benefits
- Death benefits and life insurance proceeds
- Employer-paid health insurance premiums, but only if offered uniformly to all employees
- Scholarships tied to a degree program where no services are provided in return
- Witness and juror fees
The 401(k) Surprise
Retirement contributions that lower your federal taxable income do not lower your Philadelphia wage tax. The city explicitly counts 401(k) deferrals, Section 125 medical and dental premiums, health savings accounts, flexible spending accounts, and employee pension deductions as still subject to the wage tax.5City of Philadelphia. What Types of Income Are Not Subject to the Wage Tax? Employer-side contributions are treated differently: matching contributions to your 401(k) or pension are not subject to the wage tax, provided the plan does not exclude certain employees from participation.1City of Philadelphia. Wage Tax (Employers) Maxing out your 401(k) will not shave a dollar off your Philadelphia bill.
Low-Income Reduced Rate
If you qualify for Pennsylvania tax forgiveness under Schedule SP, you can apply for an income-based wage tax refund that drops your effective rate to 1.5%. The city refunds the difference between what was withheld and that reduced rate. It applies to both residents and non-residents.6City of Philadelphia. Do You Qualify for Philly’s Income-Based Wage Tax Refund? The savings are real: a resident earning $30,000 would owe $1,122 at the standard rate and $450 at the reduced rate.
Filing, Withholding, and Refund Deadlines
Most employees never file a wage tax return. Employers withhold from each paycheck and remit to the city on a schedule set by how much they hold back each month: quarterly if under $350, monthly between $350 and $16,000, and semi-monthly or weekly above $16,000. All of it moves through the Philadelphia Tax Center, the city’s online portal.7City of Philadelphia. Access the Philadelphia Tax Center8City of Philadelphia. Wage Tax Due Dates
Non-residents seeking a refund for out-of-city workdays, and low-income earners claiming the 1.5% rate, both file refund petitions after year-end. Any refund claim must be filed within three years of the date the tax was paid or the date it was due, whichever is later. Expect six to eight weeks for processing.9City of Philadelphia. Request a Wage Tax Refund
Penalties and Interest
An unpaid balance grows quickly. For 2026, the city charges 9% annual interest (0.75% per month) plus a monthly penalty of 1.25%, for a combined 2% per month. The penalty rate has held at 1.25% since 2014; the interest rate adjusts each year.10City of Philadelphia. Interest, Penalties, and Fees
New Jersey Residents and Cross-Border Credits
The reciprocal agreement between Pennsylvania and New Jersey exempts New Jersey residents from Pennsylvania state income tax on wages earned in Pennsylvania. It does not extend to the Philadelphia wage tax. If you live in New Jersey and work in Philadelphia, you owe the 3.43% non-resident rate on top of your New Jersey obligations. New Jersey lets you claim a credit for the Philadelphia tax on Schedule NJ-COJ, which prevents full double taxation on the same income.11State of New Jersey Department of the Treasury. Credit for Taxes Paid to Other Jurisdictions
Philadelphia residents who earn income in a local jurisdiction outside Pennsylvania and pay local income tax there can claim a refund from Philadelphia under the Supreme Court’s 2015 decision in Comptroller of Treasury of Maryland v. Wynne. The refund equals the lesser of what you paid the other local jurisdiction or what you paid Philadelphia on the same income. File the refund petition through the Philadelphia Tax Center and write “WYNNE” on the form. This route covers local taxes only; state-level taxes paid to another state are handled through Pennsylvania’s state return, not through a Philadelphia refund.12City of Philadelphia. Request a Refund for Taxes Paid to Local Jurisdictions
Why Philadelphia Can Charge This Rate
Philadelphia is the only municipality in Pennsylvania that can levy a wage tax at these levels. The authority comes from the Sterling Act of 1932, codified at 53 P.S. § 15971, which lets a “city of the first class” tax persons, transactions, occupations, privileges, and personal property within its limits.13Pennsylvania General Assembly. Pennsylvania Statutes Title 53 PS Municipal and Quasi-Municipal Corporations 15971 A first-class city must have at least one million residents, and Philadelphia is the only one that qualifies.
Every other Pennsylvania municipality operates under the Local Tax Enabling Act, which caps local earned income taxes at 1% and requires that cap to be shared with the school district if both impose a tax.14Pennsylvania General Assembly. The Local Tax Enabling Act The Sterling Act sets no such ceiling, which is why Philadelphia’s rate sits far above what any other city or borough in the state can charge.