Philly is cutting the wage tax to boost business. What does that mean for workers? (Spoiler: not much)

The wage tax is Philadelphia’s single biggest bucket of revenue, bringing in more than $1.5 billion annually.

cityhall-detail-4crop
Mark Henninger / Imagic Digital
lizzymclellanravitch-headshot

💌 Love Philly? Sign up for the free Billy Penn newsletter to get everything you need to know about Philadelphia, every day.


Housing, gas, groceries: costs are rising.

One that may be about to drop — ever so slightly — is Philadelphia’s wage tax. City Council is poised to approve a decrease on Thursday when it passes the fiscal year 2023 budget, which goes into effect July 1.

The wage tax is Philadelphia’s single biggest bucket of revenue. Intake plummeted with COVID closures and remote work, but it’s been creeping back up. Of $3.8 billion expected city tax revenue in FY2023, over $1.6 billion is slated to come from the wage tax.

Whether you’re a Philly resident or a non-resident working in the city, the rate cut will not have a meaningful impact on your wallet.

Council and Mayor Jim Kenney’s administration also agreed to cut the net income portion of the Business Income and Receipts Tax (BIRT) — which applies to any person or business pursuing profit — from 6.2% to 5.99%. This has been celebrated by some as a major win for attracting businesses to the city.

Meanwhile, the budget is expected to include tax relief measures for property owners after new assessments, released in May, saw property values skyrocket an average of 31%.

What’s the reasoning behind these cuts, and how will it affect you? Read on.

How much will Philly workers save?

The wage tax rate is set to drop from 3.84% to 3.79% for city workers, and the median annual household income for Philadelphia is about $49k.

With that household income, you’d pay $1,886 per year in wage taxes under the current rate. Under the new rate, your annual total would be $1,862.

That’s a savings of about 47 cents per week — just about enough to buy a banana.

For non-residents, the savings are more miniscule. It’s just a 0.008% decrease in wage tax for non-residents who work in Philly, to 3.44%. Applied to a median household income of roughly $90k in much of the suburbs, the drop comes out to about 14 cents per week.

When Mayor Kenney proposed a wage tax decrease in May, he had suggested a bigger cut for residents, bringing the rate down to 3.7%. That would’ve saved a typical Philly household about 64 cents per week.

Who do the tax cuts benefit?

Supporters of the wage tax and BIRT decreases frame them as a way to help the small business community.

Five regional chambers of commerce and other local business coalitions came together earlier this month to push City Council in this direction. Employers often cite these taxes as a reason for locating their business just outside city limits.

After Council gave the budget preliminary approval last week, several lawmakers touted the business-friendliness of the measures they’d just proposed, noting that proprietors in the city feel beaten up by the pandemic and squeezed by inflation.

Chambers of commerce leaders celebrated the proposal. They’ve argued that business-friendly measures will ultimately create jobs and help curb poverty rates.

So who loses out?

Tax revenue funds many city services, so some worry cutting rates could negatively affect those services.

This time around, Councilmembers Kendra Brooks, Helen Gym and Jamie Gautier did not support the BIRT and wage tax decreases.

“The wage tax proposal saves just 45 cents a week for the average Philadelphia wage earner, while most of the $11 million in the broad based BIRT tax reduction will be taken by large corporate entities, none of whom will make relocation or business decisions because of it,” Gym said in a statement provided to Billy Penn.

“When we’re trying to rebound as a city, I wasn’t comfortable taking that revenue away from city services,” Gauthier told KYW.

Wage tax revenue overall is projected to grow by 6.95%, according to Kenney’s original budget proposal from March, surpassing pre-pandemic levels for the first time.

What does this have to do with property taxes?

Back in May, Kenney framed the wage tax cut as one way to ease the burden of ballooning property assessments. While property tax rates haven’t actually increased, the new valuations mean many people will get a bigger March 2023 tax bill.

Another way to ease the burden? Increasing the Homestead Exemption, which allows you to knock off a set amount from your property value when calculating the tax.

For city residents who live in the property they own, at least, these changes are much more meaningful than the wage tax cut. Kenney proposed boosting the exemption from $45k to $65k, but Council is taking it further.

Under the budget expected to pass, the Homestead Exemption is $80k, which could save over $1k per year.

The proposed budget also includes a boost for the Longtime Owner Occupants Program, which limits the speed at which assessed value can rise for longtime property owners.

What was the pandemic’s effect on wage taxes?

It took a big hit.

In fiscal year 2021, which ended in June 2021, the city reported a $124 million decrease in revenue from wage and earnings taxes compared to the previous year.

Some of that has come back in FY2022. Employers appear to be withholding more this year, revenue commissioner Frank Breslin told Billy Penn earlier this spring. And people can only get a wage tax refund if they are required to work outside Philadelphia. Many suburbanites were forced to do so in 2020 because of COVID, but had an office to come back to this fiscal year.

Still, long-term changes in workplace culture are likely to affect Philly’s ability to collect.

The city could miss out on $572 million in nonresident wage tax revenue between 2022 and 2026, per a May report by Pew Charitable Trusts, versus what revenue would have been if not for the pandemic. The number of jobs located in Philadelphia is down 6%, Pew said in its June report.

The city got $1.4 billion from the American Rescue Plan Act to replace that revenue, but that will eventually run out, the Pew report noted.

Wage taxes decreased last year too, right?

Yes. The wage tax has been around since 1939.

The current rates went into effect on July 1, 2021, a tiny reduction from the previous rates of 3.87% for residents and 3.50% for nonresidents.

Mornings are for coffee and local news

Billy Penn’s free morning newsletter gives you a daily roundup of the top Philly stories you need to start your day.

You finished another Billy Penn article — keep it up!

We hope you found it useful, fun, or maybe even both. If you want more stories like this, will you join us as a member today?

Nice to see you (instead of a paywall)

Billy Penn’s mission is to provide free, quality information to Philadelphians through our articles and daily newsletter. If you believe local journalism is key to a healthy community, join us!

Your donation brought this story to life

Billy Penn only exists because of supporters like you. If you find our work valuable, consider making a sustaining donation today.

Being informed looks good on you

Thanks for reading another article, made possible by members like you. Want to share BP with a friend?