April 10, 2020
As long as companies are requiring employees to work from home, they are exempt from the 3.4481% nonresident tax. People who live in the city, no matter where they work, must always pay the 3.8712% resident wage tax.
If you live outside the city and have been working from home because your company closed its Philadelphia offices under orders from Mayor Jim Kenney and Governor Tom Wolf, you do not have to keep paying the city wage tax
Employers can stop withholding the tax from the paychecks of non-Philadelphia residents who are now required to work remotely.
Workers who are still required to report to work at essential jobs in the city must continue paying the tax as usual.
If an employer does not change the tax withholding on your paycheck, or begins doing so after you’ve already been working from home for a few weeks, you can apply for a refund from the city for days worked outside the city. Refund requests can be submitted to the Philadelphia Department of Revenue after the end of a tax year, or in 2021 for days worked outside the city during the current crisis. Refund applications require an employer’s signature verifying time worked outside of the city.
People who live in municipalities with their own earned income taxes may have to begin paying those levies, which are usually 1% or less, which would still result in a net savings compared with the higher city rate.
The wage tax, which raised $1.7 billion in revenue for the city in the last fiscal year, accounts for more than one-third of the city’s annual general fund revenue. About 40% of wage tax revenue is paid by nonresidents.
After experiencing remote work for a few months, companies may change their work-from-home policies, adding flexibility. But that doesn’t necessarily mean you can stop paying the tax forever. There’s a key word to the exemption permitted by the pandemic: required. The exemption from the wage tax only applies if a Philadelphia-based employee is required to work outside the city.
Workers have always been eligible for wage tax refunds for days on which they are required to travel to other cities for business.
If your company decides remote work was so effective during the coronavirus pandemic that it is closing its offices forever, non-Philadelphia employees can stop paying the tax. But if your company simply decides to offer an option of working from home one or two days a week, you have to keep paying the tax on the entirety of your income.
We will share more details as they become available. Please visit our
COVID-19 Resource Page
for more updates.
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at
Richard.Higgins@MCC-CPAs.com
. I can be reached at
Marty.McCarthy@MCC-CPAs.com
. As always, we are happy to help.
Stay safe,
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company
Source: Laura McCrystal, Updated: April 8, 2020 Philadelphia Inquirer
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).