This blog post is part of a series addressing the City Wage Tax. The series covers the questions we receive most frequently at the Philadelphia Department of Revenue about this tax. In our first post, we focused on who pays the Wage Tax and when.
In this second post we will identify the types of income that are not subject to the tax. In most cases, any payments or benefits you receive as income are taxable unless the Income Tax Regulations say they are excluded.
Types of income that may not be subject to Wage Tax are:
- Pension payments
- Benefits under the Workmen’s Compensation Act
- Active military service pay
- Sick or disability benefits
- Juror fees
There are several other items of excluded income that are not listed above. You can read Section 104 of the Income Tax Regulations for a full list of excluded income.
In most cases your employer will withhold Wage Tax on your behalf. But in some situations, you may receive a payment or benefit from your employer that is taxable and has not been withheld. In this case, you are required to pay Wage Tax directly to the City.
Employee contributions to medical and 401(k) plans offered by your employer are subject to Wage Tax. Some examples are:
- Pre-tax Sec 125 benefits (Medical/Dental/Vision, etc.)
- 401(k) deferrals
- Health Spending Accounts (HSAs) Flexible Spending Accounts (FSAs)
- Pension Deductions
If your employer is contributing to your benefit plan and the benefit plan does not exclude certain employees from receipt, then the employer’s contribution will not be subject to the Wage Tax. For example, employer matches to 401(k) plans or the amounts paid by an employer for health insurance premiums would not be taxable.
As a reminder, if you’re still unsure if your income is subject to City Wage Tax, you can refer to the Income Tax Regulations for more information and specific examples. You may also send an email to email@example.com if you have a question about a specific pre-tax deduction.
The next article in this City Wage Tax series will explore the eligibility requirements to receive a Wage Tax refund.