If you are relocating to Philadelphia, it is good to find out as much as possible about what it looks like to live in Philadelphia before you make your move. One great thing to learn about is the hidden cost of living in Philadelphia. One such cost that takes people by surprise when moving to Philadelphia is the wage tax.
Philadelphia’s wage tax is also called the city wage or earnings tax. This is a local tax on salaries, wages, commissions, bonuses, and other compensation. As of July 1, 2026, the wage tax rates are 3.735% for residents of Philadelphia and 3.425% for non-residents who perform work inside the city limits.
The Hidden Costs of Living in Philadelphia: Wage Tax Explained
Key factors about the wage tax
It comes out of every paycheck or must be paid separately if not withheld
It applies on top of federal income tax, FICA (Social Security and Medicare taxes), and Pennsylvania’s flat 3.07% state income tax
Residents pay the resident rate on every bit of earned income, no matter where they work. Non-residents pay only on income that was earned while performing work inside the Philadelphia city limits.
There are no reciprocal agreements with other cities or states, so living in Philadelphia and working elsewhere does not eliminate the tax
A snapshot of what taxes could look like
- A $50,000 salary for a Philadelphia resident would mean paying $1868 annually
- A $75,000 salary for a resident would mean paying $2801 annually
- A $100,000 salary for a resident would mean paying $3735 annually
These calculations are based on gross wages and reduce take-home pay before you factor in rent, utilities, and other expenses like sales tax.
The good news is that tax rates have gradually declined on a multi-year plan approved by city council, with further small reductions expected in coming years. The wage tax is Philadelphia’s largest single revenue source and helps fund city services.
A majority of Philadelphia employers will withhold the tax automatically. If an employer does not withhold the tax, the employee must file and pay the earnings tax through the Philadelphia tax center.
Schedule SP
Schedule SP is the Pennsylvania special tax forgiveness on the Philadelphia wage tax. It is a key form that can significantly reduce the impact of both the state income tax and Philadelphia wage tax for lower-income individuals and families.
Schedule SP provides a tax forgiveness credit that can reduce or completely eliminate state income taxes owed based on household size and eligibility income. Eligibility income can be higher than taxable income. It is important to calculate this carefully using the official form and instructions.
If you are approved for Schedule SP on a state level, you may become eligible for Philadelphia’s income-based wage tax refund. This means that qualified taxpayers are treated as paying the wage tax at a reduced flat rate of 1.5%. The city will refund the difference between what was withheld at the full rate and the expected 1.5% rate. Applicants can apply for this reduced rate by filing a Pennsylvania PA – 40 personal income tax return and completing Schedule SP. Once Schedule SP is approved, a Philadelphia resident can submit a Philadelphia income-based wage tax refund petition. They will ask you to attach copies of your PA-40, completed Schedule SP, and relevant W-2.
Knowing about the Philadelphia wage tax is important for people moving here. It is often discussed in many online forums centered around moving to Philadelphia. It often catches people off guard. Knowing the true cost of living and being prepared for it is helpful to budget properly for living in Philadelphia.
FAQ Philadelphia wage tax
Who has to pay the Philadelphia wage tax?
Every resident living within Philadelphia city limits will pay the Philadelphia wage tax, regardless of where they work. People who do not live within the city limits only need to pay for work performed inside the city limits.
Does it apply to remote work or hybrid work?
For residents, it does apply. For non-residents, it only applies to work that was performed within Philadelphia.
Is this an additional tax on top of state and federal taxes?
Yes. This is an addition to Philadelphia state income tax and federal tax requirements.
What if my employer does not withhold the wage tax?
An employee who does not have wage taxes withheld needs to file and pay the earnings tax themselves. This can mean quarterly payments and annual reconciliation. There are many remote and out-of-state employers that do not withhold the tax.
If you are making a move to Philadelphia, we are happy to help you make a smooth transition. When you are ready to look for your home in Philadelphia, contact the team at Victory Real Estate. We are a boutique real estate agency in the city, offering you a unique experience you will not find anywhere else
If you are looking for more information about living in Philadelphia, the Victory Real Estate Team is here to help. We are a boutique real estate firm in Philadelphia offering the best real estate services in the city.
Victory Real Estate receives high ratings and a high number of five-star raving reviews.
“Leron was nothing short of amazing during the process of finding/buying our first home. Leron is a subject matter expert, he responds to all of our questions promptly and communicates clearly. Competent, professional, and responsive. All great traits to have in the business of real estate. Thank you Leron.”
Contact us anytime for any greater Philadelphia real estate needs, both buying and selling primary and investment properties in the city and surrounding suburbs.