This blog post is part of a series about the City Wage Tax. In the series, we’re answering some frequently asked questions about this Philadelphia tax. The City Wage Tax applies to salaries, wages, commissions and other compensation that an individual receives from an employer in return for services.
You must pay Wage Tax if you are a:
- Philadelphia resident, regardless of where you work
- Non-resident who works in Philadelphia (Non-residents are taxed on the portion of their compensation which is earned within the City, based on working days.)
In most cases, Wage Tax is automatically withheld by your employer. If you notice the tax is not being withheld or being withheld improperly, you may be liable to pay. Check in with your employer to answer any questions you may have. If this is your case, read more about what to do in our previous blog post.
An employer must withhold Wage Tax when:
- The employer has a location within the Commonwealth of Pennsylvania, and employs a Philadelphia resident. This is true even if the Pennsylvania employer does not have a physical location in Philadelphia or is not engaged in business activity within the City.
- Example: You live in South Philadelphia but work for an employer in Malvern, PA.
- The employer has nexus for purposes of the Business Income and Receipts Tax (BIRT), even if the employer does not have a location within the City. Again, this applies to all residents of Philadelphia, as well as non-residents who work in Philadelphia.
- Example: An accounting firm in Radnor, PA has no business location in Philadelphia. However, several of its non-resident employees travel to a client located in Center City several times a year to perform services. The firm generates $250,000 in annual fees from this client, enough to have nexus in Philadelphia. The firm in Radnor must therefore withhold Wage Tax on the compensation of its non-resident employees for the days they worked at the Center City client’s location.
- The firm must also withhold Wage Tax on 100% of the compensation received by its Philadelphia resident employees, regardless of where they work.
Employers can refer to Section 103 of the BIRT Regulations as to “What Constitutes Doing Business (Having Nexus) in Philadelphia.”
Most employers are required to file and pay Wage Tax according to the Wage Tax schedule. Employers who use an outside payroll service must file and pay the tax electronically through the Department of Revenue’s eFile/ePay website. Philadelphia-based non-profits and academic institutions are also required to withhold Wage Tax from all workers’ paychecks and remit it to the City.
The next article in this City Wage Tax series will focus on the types of income that are not subject to Wage Tax.
Photo: Samantha Madera