PHILADELPHIA – The City of Philadelphia Department of Revenue has announced a policy clarification to support businesses that will be required to file and pay the Business Income & Receipts Tax (BIRT) for the first time for Tax Year 2025 (due in April 2026). Businesses that were not required to file or pay BIRT in the past three years, because their Philadelphia sales fell below $100,000 and did not have a filing requirement, will be treated as “new businesses” under the City’s clarification of its existing policy. The City eliminated the $100,000 Business Income and Receipts Tax (BIRT) exemption beginning in 2025 in response to a legal challenge.
Being treated as new businesses means these businesses will not need to make an estimated payment when they file their first BIRT return in 2026 – they will only pay taxes on their 2025 activity. Without this policy, these businesses would have to pay taxes on 2025 activity and pay a 100 percent estimate for the 2026 tax year. When these businesses file in 2027, they will have the option to pay their second-year estimate in quarterly installments instead of paying the estimate in full on April 15.
“As a result of a legal challenge, the City eliminated the BIRT exemption, creating a significant shift in tax obligations for many small businesses,” said Kathleen McColgan, Revenue Commissioner. “With this policy clarification, we’re easing the transition for businesses that have been operating in Philadelphia but previously did not have a filing or payment requirement. This support will make a meaningful difference, especially for small businesses that will have a tax bill for Tax Year 2025.”
The ability to offer a deferral for estimated payments to newly filing businesses is the result of City legislation passed in 2018 (Bill 180077), which changed how the City treats new businesses for tax purposes. The Department of Revenue does not require “new businesses,” those doing business in the City for the first time, to make an estimated payment when they file their first return.
Before this legislative change, Revenue required all businesses to make an estimated payment equal to the prior year’s tax liability. Since that change, new businesses may bypass the estimated payment in their first year of filing and make quarterly estimated payments when they file their second-year return. When businesses file their third return, they are required to make a 100 percent estimated payment towards that year’s return.
Along with changes to tax policy, the FY26 Budget also allocates nearly $40 million to the Department of Commerce to implement new grant and technical assistance programs, including grants up to $50,000 for growing businesses, free tax preparation services for small businesses across the city, and grants to support commercial real estate acquisition. Details about these programs are available at phila.gov/commerce.
A full explanation of this tax clarification is available in a blog post at phila.gov/revenue, which includes a diagram to explain the timing of filing and paying taxes in 2026.