Here’s how much the new Philly wage tax cuts could save you each year
The new city budget will save Philadelphians a few extra dollars as a result of the wage tax rate decrease. Here’s what you need to know about how the new city budget impacts your pockets.
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City Council on Thursday approved some wage and business tax cuts as part of the new budget deal. The legislation is now on track for final passage on June 15, and would cement the cut through the next year.
The approved budget plan would result in about $32 million in tax cuts, which is about 0.5% of the overall general fund.
It would also save Philadelphians a few extra dollars as a result of the wage tax rate decrease. Here’s what you need to know about how the new city budget would impact your pockets.
What is the city wage tax?
The wage tax is deducted from all forms of compensation — including salaries, wages, and commissions — paid to a person who lives or works in Philadelphia.
The earnings tax is the same thing, but has a different name when the tax is withheld directly by an employer.
Often, they’re lumped together and called “the wage and earnings tax,” though it’s just one tax.
How much is it now?
The wage tax is 3.79% for Philadelphia residents and 3.44% for nonresidents.
How much would it be?
Under the new budget, the Philadelphia resident wage tax rate would drop to 3.75%. The rate for people who live outside of Philadelphia but work in the city would stay the same.
How much money would I save?
People who bring home the Philadelphia median salary, or $52,649 annually, would save about $21 a year.
Those who bring home the average Philadelphia salary, or $75,205 annually, would save about $30.
People who make $30,000 would save $12 a year. Those who make $100,000 would save $40 a year.
When would the tax cuts take effect?
The next city budget will take effect July 1, when a new fiscal year begins.
City Council voted to advance the budget deal Thursday, but it must still get a final vote in Council before going to Mayor Jim Kenney for his signature.
Why is it changing?
Philadelphia’s $6.2 billion budget deal comes as the city is flush with cash thanks to better-than-expected tax revenues and $800 million of unspent federal pandemic aid.
The city has traditionally lowered wage and business taxes annually in small increments, but some Council members pushed for bigger tax cuts this year to enact policies they said would make it more desirable to do business in Philadelphia. The Chamber of Commerce for Greater Philadelphia lobbied for even steeper tax cuts, while more progressive members of Council fought against them and advocated for that money to be spent on expanded city services.
What about the business tax?
The business tax, or business income and receipts tax, applies to any person or corporate entity engaged in for-profit business in Philadelphia. The net income portion of that tax is earnings after expense deductions. That portion would be lowered from 5.99% to 5.81%.
The 0.03% decrease would save a company with a net income of $1 million $1,800 annually.