Is your job based in Philly but you had to work from your suburban home in 2020?
If so, your employer can file with the city on your behalf for the first time, and your 2020 wage tax refund will be mailed directly to you.
But for most Philly workers, it appears unlikely that your employer will take this collective action — for reasons described below.
Instead, you’ll probably have to file individually for a city wage tax refund. And you must include a letter from the bosses proving that you were mandated to work from home — and didn’t make that decision on your own. Then you have to wait six to eight weeks, delays permitting.
Welcome to the craziest tax year in memory. The phones are already ringing off the hook in the city’s revenue department. At issue are millions of dollars that the city may have to refund to Philadelphia workers who spent the pandemic working from the suburbs.
The city wage tax raises $1.5 billion a year and accounts for about 45% of the city’s annual revenue. So it is a big deal.
Due to the pandemic, the tax is expected to decline by about $78 million in the fiscal year ending June 30, The Inquirer has reported. And the city expects to collect $200 million less in the wage tax than projected in the current year.
The city typically collects 40% of its roughly $1.5 billion in annual wage taxes from nonresidents. These are the folks who might be in line for a refund.
“The wage tax issue is really hot right now,” said Jennifer Karpchuk, tax attorney and shareholder at Chamberlain Hrdlicka in Conshohocken.
Philadelphia has the nation’s highest wage tax, currently 3.87% for residents and 3.5% for nonresidents who commute to work in the city. The tax has often been cited as a job killer, but it raises so much money that the city can’t easily replace it.
Before COVID-19, companies withheld Philadelphia wage tax from paychecks automatically.
But that changed this year for many workers.
Can I get a wage tax refund?
Philadelphia’s long-standing “test” for who pays the wage tax was updated especially for the COVID 2020 tax year.
“If you’re a nonresident, and your employer required you to work from home [during COVID], you don’t pay the wage tax. If it’s optional that you work from home, then you still pay,” Karpchuk explained.
“A lot of people may get tripped up, thinking they get the refund. It’s not necessarily the case. If you weren’t mandated to stay home, then you are liable for the wage tax.”
For the first time, the Philadelphia Department of Revenue is offering employers a “bulk” filing option, whereby companies can file for refunds on behalf of all their workers.
Because so many Philadelphia workers were ordered to work from their abodes, for 2020 only “we are allowing employers to submit a refund request on behalf of a group of their nonresident employees,” the city said on its website.
However, many employers are hesitant, fearing a tax audit from the city, accountants say. That fear is likely to prevent many companies from doing it collectively.
Employers and employees: What you’ll need
So far, the city’s Department of Revenue has an online form for employers requesting the wage-tax form. Download that employer form at www.phila.gov/documents/2020-wage-tax-refunds/.
Rebecca Lopez Kriss, deputy commissioner of the city’s Department of Revenue, said the hope is to have it online as soon as possible.
Here’s the link: www.phila.gov/documents/2020-wage-tax-refunds .
The department is staffing up, she said in the department’s All About Wage Tax Refunds video on YouTube. She predicted a six- to eight-week wait for a refund. “Please don’t call us a week after you file for your refund,” she said. “It’s going to be awhile.”
If you’re filing for a refund yourself, you’ll need a letter from your company stating that you were mandated to work from home, plus one of the city’s forthcoming wage tax refund petition forms.
Again, “The key aspect is that the Philadelphia office of the business must be closed, or if open, the company must have mandated that employees work from home,” said Blue Bell CPA David Zalles. “Ideally the employee should have a document stating this, and I suggest attaching that document to the refund form.”
It probably won’t be as simple as it sounds, tax experts say. Refunds could present a “logistical nightmare,” said Phyllis Epstein, a lawyer and tax expert with Epstein, Shapiro & Epstein in Center City. “Another interesting question is how self-employed individuals establish that they were ‘required’ by their employer to work from home.”
One form will be for nonresident employees who were ordered to work from home during the pandemic. A streamlined petition, it is available only to workers who were required to work from home by their employer. Be sure to include:
A letter from your employer for the dates you were required to work outside Philadelphia.
A full copy of your W-2, which includes taxes paid to Philadelphia.
Another online form is for lower-income filers who are eligible for the Earned Income Tax Credit, said Duane Morris tax group head Michael Gillen.
If you fall in that category, you must file an income-based refund petition. It can be signed by your employer or a tax preparer. Be sure to include:
A full copy of your W-2 for each employer (if you have more than one).
A copy of the PA SP-40 form you file with the Commonwealth of Pennsylvania.
All 2020 refund forms should be available on the city’s website: www.phila.gov/revenue/tax-forms.
If you have questions, email email@example.com or call at (215) 686-6574; -6575 or -6578.
Free tax-prep help
Temple University’s Fox School of Business will again offer the free Volunteer Income Tax Assistance (VITA) program. It’s open to any family, individual or student who makes less than $56,844 annually.
This year’s VITA program will operate virtually. The Internal Revenue Service said tax season will start Friday, Feb. 12, when the agency will begin accepting and processing 2020 tax year returns.
“Now, more than ever, this program is of the utmost importance,” said Steve Balsam, a professor of accounting and the coordinator of Temple’s VITA program.
First option: Mail VITA the documents listed to Box 1031, Springhouse, Pa. 19477. Those documents are available here: https://ambler.temple.edu/vita-2021-required-documents.
VITA will contact you to confirm receipt. If you don’t hear back after a week, contact 215-326-9519 or email firstname.lastname@example.org.
Second option: A VITA affiliate, the Community Development Corporation, on Saturday, Feb. 6, starts allowing clients to drop-off their documents at the following locations, days and times:
Community Development Corp., 210 Cedar Ave., Willow Grove, Pa., on Tuesdays, 4 to 7 p.m.; Thursdays, 4 to 7 p.m.; Saturdays, 9 a.m. to noon.
Community Development Corp., 1840 County Line Rd., Suite 212, Huntingdon Valley, Pa.; on Mondays, 4 to 7 p.m.; Wednesdays, 4 to 7 p.m.; Fridays, 11 a.m. to 4 p.m.
The Future of Work is produced with support from the William Penn Foundation and the Lenfest Institute for Journalism. Editorial content is created independently of the project’s donors.
Staff writer Laura McCrystal contributed to this story.