If you live or work in Philadelphia, you probably know about the Wage Tax. If you don’t, take a good look at your next paycheck. Since 1939, the City has imposed an income tax on “salaries, wages, commissions, and other forms of compensation” earned by employees.
This includes all residents, whether they work in or outside Philadelphia. It also includes employees of Philadelphia-based businesses and organizations, even when they live outside the city (non-residents).
As the economy evolves, workplaces change. Today, more and more employees perform their work outside traditional office settings. They work from home, cafes, co-working spaces, and other locations.
A number of non-residents aren’t commuting into Philadelphia to work. They want to know: Do they still owe the Wage Tax?
Telecommuting, working on the road or from home, is nothing new. State and city governments that impose local income taxes have faced similar questions. When do employees pay and when are they exempt?
Their answers are usually guided by two, very different standards:
Some taxing jurisdictions enforce a “physical presence” standard. This standard only considers the exact location where a job is performed. It takes nothing else into consideration. If an employee works outside a jurisdiction, for whatever reason, he or she is exempt for that time.
Other tax jurisdictions rely on what they call the “necessity” standard. New York, New Jersey and Pennsylvania are among the US states that apply this standard. In this case, an employee working outside the state is exempt if the service performed couldn’t be fulfilled the same way within the state.
Some examples are:
- A vendor meeting with clients outside the state
- A builder working on a construction site outside the state
- A researcher conducting tests in specialized, out-of-state labs
Philadelphia’s standard for non-residents
The City of Philadelphia uses a standard that falls somewhere in between. It’s called the “requirement of employment” standard. It applies to all non-residents whose base of operation is the employer’s location within Philadelphia.
A non-resident is exempt from the Wage Tax when the employer requires him or her to perform a job outside of Philadelphia.
A resident is never exempt from the Wage Tax, and is subject to the tax on his or her entire, worldwide income.
Therefore, a non-resident who works from home for the sake of convenience is not exempt from the Wage Tax –even with his or her employer’s authorization. On the other hand, if a Philadelphia employer requires a non-resident to perform duties outside the city, he or she is exempt from the Wage Tax for the days spent fulfilling that work.
- Example 1: Sam works as a cybersecurity analyst for a Philadelphia firm. During the summer, the firm allows Sam to work from her home in Conshohocken. Sam is not exempt from the Wage Tax for her time spent working from home.
- Example 2: Sam’s firm asks her to spend a month reviewing a client’s server system, at the client’s site in Delaware, instead of the firm’s Philadelphia office. Sam, who lives in Conshohocken, is exempt from the Wage Tax for the month spent working in Delaware.
If you have questions about a specific case, please email the Department of Revenue: firstname.lastname@example.org.