Philadelphia Wage Tax: Resident and Nonresident Rate

Everyone who works in Philly pays

Why does Pennsylvania reciprocity not exempt you?

Pennsylvania has reciprocal tax agreements with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. Under these agreements, if you live in one of these states and work in Pennsylvania, the other state will not tax your PA wages — and vice versa. This simplifies filing because you only owe state income tax to your home state.

However, the Philadelphia wage tax is a city tax, not a state tax. The reciprocal agreements cover state income taxes only. Philadelphia's separate municipal wage tax applies regardless of where you live. A New Jersey resident commuting to Center City still owes the 3.425% nonresident wage tax to Philadelphia, even though New Jersey will not tax those same wages at the state level.

This catches many suburban commuters off guard. It is one of the few local taxes in the US that applies to nonresidents at nearly the same rate as residents.

How does the wage tax work for employers?

Employers with a Philadelphia location must withhold the wage tax from employee paychecks, similar to federal withholding. The employer determines whether each employee is a resident (3.735%) or nonresident (3.425%) and withholds accordingly.

If your employer is outside Philadelphia and does not withhold the tax, you are responsible for paying it yourself. Residents file the Earnings Tax return with the Philadelphia Department of Revenue. This is the same tax at the same rate — the only difference is that "wage tax" refers to the employer-withheld version and "earnings tax" refers to the self-reported version.

What is the impact on a typical paycheck?

Philadelphia residents face an unusually high combined state-and-local tax bite on wages because both the PA flat tax (3.07%) and the city wage tax (3.735%) apply to gross wages:

Worked example: $75,000 salary, single filer, Philadelphia resident

Illustrative example using 2026 federal brackets, PA flat rate, and verified Philadelphia rate. Use our Philadelphia take-home calculator for a personalized estimate.

Can remote workers get a refund?

If you are a nonresident and your employer withheld the Philadelphia wage tax on days you worked from your home outside the city, you can file for a refund with the Philadelphia Department of Revenue. This became especially relevant during and after the pandemic as remote work arrangements became permanent.

To claim a refund:

1. Track the specific days you worked remotely vs. in the Philadelphia office.
2. Get a letter from your employer confirming the remote-work arrangement.
3. File a Wage Tax Refund Petition with the Philadelphia Department of Revenue.
4. The refund applies to the nonresident rate (3.425%) on the wages earned on remote days.

Philadelphia residents cannot claim this refund because the resident wage tax applies to all income regardless of where the work is performed.

Are the rates scheduled to change?

Yes. The city enacted a schedule of gradual rate reductions beginning in 2025. The current rates (3.735% resident / 3.425% nonresident) became effective July 1, 2026, and further decreases are planned over the next several years. Check the Philadelphia Department of Revenue for the most current rate schedule.

How does the self-employed earnings tax filing work?

If you are self-employed and work in Philadelphia (or live there), no employer withholds the wage tax for you. Instead, you file the Earnings Tax return directly with the Philadelphia Department of Revenue. The tax rate is identical to the wage tax rate — 3.735% for residents, 3.425% for nonresidents.

You must make quarterly estimated payments if you expect your annual earnings tax liability to exceed $200. The due dates follow the city's fiscal calendar and may not align exactly with federal estimated tax dates. Underpayment penalties apply if you do not pay at least 90% of your actual liability through quarterly installments.

The earnings tax applies to net self-employment income (gross receipts minus business expenses), similar to how federal Schedule C works. Philadelphia also levies a separate Net Profits Tax on business income, which is closely related but technically distinct from the earnings tax. If you are self-employed, you may owe both.

What happens when you move into or out of Philadelphia mid-year?

If you move into Philadelphia during the year, you switch from the nonresident rate (3.425%) to the resident rate (3.735%) from your move date. Your employer needs to update your withholding status. For the period before the move, the nonresident rate applies to wages earned in Philadelphia. After the move date, the resident rate applies to all wages, even those earned outside the city.

If you move out of Philadelphia, the reverse applies. Notify your employer immediately so they can switch your withholding from resident to nonresident. You may need to file two separate returns or a single return with split allocation for the year.

The key date is when you actually change your permanent residence — not when you update your driver's license or voter registration. The Department of Revenue uses utility connections, lease agreements and similar evidence to determine actual residency dates if audited.

What if your employer is withholding the wrong Philadelphia rate?

The most common error is applying the resident rate to nonresidents. This overcharges suburban commuters by the difference between 3.735% and 3.425%. Steps to correct it:

1. Notify your payroll department with proof of your home address outside Philadelphia.
2. Request they update your status to nonresident and apply the 3.425% rate going forward.
3. For the period when you were over-withheld, file a Wage Tax Refund Petition with the Philadelphia Department of Revenue to recover the difference.
4. If your employer does not withhold Philadelphia tax at all and you are required to pay it, file and pay directly with the Department of Revenue to avoid penalties.