The City of Philadelphia is again reducing its business income and wage tax rates. Starting on July 1, 2023, the net income portion of the City’s Business Income and Receipts Tax (BIRT) will drop to 5.81%. The City’s also lowering its Wage Tax rate for residents to 3.75%. This change also affects the Net Profits Tax, Earnings Tax and School Income Tax (SIT) rates for residents. We’re sharing the details below:
Wage and Earnings taxes
Employers must begin withholding Wage Tax at the new 3.75% rate from all paychecks issued to Philadelphia residents after June 30, 2023. The rate was previously 3.79%. The non-resident rate remains the same — a flat 3.44%. The new Earnings Tax rate for residents is 3.75% for 2023. It was previously 3.79%. The non-resident rate remains 3.44%.
Both Wage and Earnings taxes apply to salaries, wages, commissions, and other employee compensation. They are two sides of the same coin; the only difference is how the taxes are collected and paid to the City of Philadelphia.
Your employer withholds the Wage Tax from your paycheck and remits it to the City on your behalf. If your employer doesn’t collect and pay the Wage Tax for you, you must file and pay the City’s Earnings Tax for yourself through the Philadelphia Tax Center. Visit our website to learn more about how to file and pay the Earnings Tax on the Philadelphia Tax Center.
Net Profits and School Income taxes
Likewise, the Net Profits Tax (NPT) and School Income Tax (SIT) are decreasing for residents. The new NPT rate for residents is 3.75% for 2023. It was previously 3.79%. The 3.44% non-resident rate remains unchanged. The NPT is a tax paid by unincorporated entities on the net profits earned from a trade, business, profession, or other for-profit activity conducted in Philadelphia. The new rate will apply to net profits earned in 2023. Keep in mind that whether your business is profitable or not, you must still file the NPT to avoid possible interest and penalties.
The new SIT rate for residents is 3.75%. It was previously 3.79%. This tax is paid on certain types of unearned income, such as dividends, royalties, short-term rental income from a duplex/triplex, which is the primary residence of the owner, cash lottery winnings from the Pennsylvania Lottery, and some types of interest. The new rate will apply to unearned income earned in 2023.
Business Income and Receipts Tax (BIRT)
For tax year 2023, the net income portion of the BIRT will drop to 5.81% from its current 5.99% rate. The BIRT applies to gross receipts and taxable net income for business activities conducted in Philadelphia. The new BIRT income tax rate becomes effective for tax year 2023 for returns due and taxes owed in 2024. The BIRT gross receipts tax rate remains the same.
The City has gradually reduced its BIRT income tax rate over the past ten years, from 6.45% in 2013 to 5.99% in 2022. Check out our BIRT webpage for more information about who pays this tax, when, and how to pay.