You’ve probably heard the rumors. People say the city’s taxes are the reason everyone is moving to the suburbs. Honestly? It’s more complicated than a simple "yes" or "now." If you live or work in Philadelphia, the philly income tax rate—specifically the Wage Tax—is basically an unavoidable part of your life. It's the price of admission for the cheesesteaks, the history, and the absolute chaos of Broad Street after a Phillies win.
But here is the thing. Most people are still quoting tax rates from three years ago. They haven't caught up to the fact that the city is actually, slowly, cutting them.
The Philly Income Tax Rate is Dropping (Slowly)
If you're looking at your 2026 paycheck and wondering why the math looks weird, it's because the rates shifted again on July 1, 2025. This wasn't a massive, life-changing slash. It was more of a nudge.
Right now, if you are a resident, your wage tax rate is 3.74%.
If you are a non-resident who commutes into the city (or works for a Philly-based company), you’re looking at 3.43%.
Compare that to 2021 when residents were paying 3.84%. It’s a downward trend. Mayor Cherelle Parker’s administration has been pushing for these incremental cuts to make the city more "business-friendly," though some local advocates argue the cuts aren't deep enough to actually stop the "suburban flight" of high-earners to places like Montgomery or Bucks County.
The Remote Work "Loophole" That Isn't
Let's talk about the biggest headache of the last few years: remote work.
I see this all the time. Someone lives in Delco but works for a company headquartered in Center City. They assume that because they are sitting on their couch in Havertown, they don't owe the philly income tax rate.
Kinda. But also, no.
Philadelphia uses a "requirement of employment" standard. If your job requires you to be outside the city, you don't pay the tax for those days. But if you’re just working from home because it's convenient or because your boss doesn't care, the City of Philadelphia still wants its 3.43%.
Non-residents often have to file for a refund at the end of the year to get that money back. You’ll need a letter from your employer basically testifying that they mandated you work from home. If you don't have that paper trail, the Revenue Department is going to keep your money.
The "Other" Taxes You’re Probably Forgetting
The Wage Tax gets all the headlines because it’s on every single paycheck. But Philly is a "tax-heavy" city in ways that sneak up on you.
- School Income Tax (SIT): This is the one that trips up retirees and investors. It’s currently 3.74% for 2026. It doesn’t apply to your salary, but it hits "unearned" income. Think dividends, some types of interest, and royalties.
- Net Profits Tax (NPT): If you’re a freelancer or a "gig" worker (Uber, DoorDash, or a solo consultant), you aren't just paying the wage tax. You’re paying NPT on your annual profit. The rate for residents is 3.74%.
- Business Income and Receipts Tax (BIRT): This is the monster. For 2026, the net income portion is 5.71%.
Here is the kicker that actually matters for 2026: The $100,000 BIRT exemption is dead. For years, if your business made less than 100k in gross receipts, you didn't have to pay. Because of a legal challenge, that's gone. Now, every single business in Philly—no matter how small—has to file and potentially pay. It’s a massive shift that is catching a lot of "side-hustle" Philadelphians off guard this year.
Why Does Philadelphia Do This?
You might wonder why Philly’s rates are so much higher than, say, New York City or Chicago. Honestly, it's a structural issue.
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A report from City Controller Christy Brady recently pointed out that Philadelphia relies on wage and business taxes for about a third of its general fund. Other cities rely much more on property taxes.
Because Philly has a lower property tax burden than many peer cities, it makes up the difference by taxing your labor. It’s a trade-off. Your mortgage might be cheaper than it would be in a Jersey suburb, but your paycheck is definitely lighter.
How to Pay Less (Legally)
If you’re feeling the squeeze, there are a few real-world ways to mitigate the philly income tax rate.
First, check if you qualify for Tax Forgiveness. If you qualify for the Pennsylvania state tax forgiveness (Schedule SP), you can actually get a refund on your Philly Wage Tax. This brings the effective rate down to 1.5%. Most people who qualify for this don't even realize they can ask for it.
Second, if you’re a business owner, remember the 60% credit. You can take a credit against your Net Profits Tax worth 60% of what you paid on the Net Income portion of your BIRT. It's confusing as hell, but it prevents you from being "double taxed" on the same dollar.
What’s Next for Your Wallet
The plan is to keep dropping the rates through 2030. The goal is to eventually get the resident rate down to 3.70% or lower. It's a "wait and see" game to see if these tiny cuts actually stimulate the economy or if they just create a hole in the city budget.
If you are a business owner, your immediate priority is 2026 filing. Since the exemptions have vanished, you need to track every single expense. The BIRT filing due in April 2026 will be the first one where "the little guys" have to pay up.
Actionable Next Steps:
- Check your pay stubs: Ensure your employer switched you to the 3.74% (resident) or 3.43% (non-resident) rate as of July 2025.
- Document remote days: If you're a non-resident working from home, keep a log of every day you were outside city limits to claim your refund in early 2027.
- Register for BIRT: If you have a side hustle or small business that previously made under $100k, go to the Philadelphia Tax Center website and make sure your account is active before the April deadline.