Surviving Philadelphia's Wage Tax: Strategies for Philly Workers

Philadelphia's wage tax of 3.807% for residents is one of the highest local income taxes in the United States. Combined with Pennsylvania's flat 3.07% state tax, Philly workers face a combined state and local rate of nearly 7% before federal taxes even kick in.

Understanding the Philly Wage Tax

The wage tax applies to all wages, salaries, commissions, and other compensation earned by Philadelphia residents — regardless of where they work. Non-residents working in Philadelphia pay a lower rate of 3.44%. If you live in the suburbs but work in the city, you still pay, but at the reduced rate.

Remote Work Opportunity

If you live in Philadelphia but work remotely for a company outside the city, you may be able to claim a refund on the wage tax for days worked from home. Track your remote work days meticulously and file for a refund with the Philadelphia Department of Revenue.

Maximize Pre-Tax Deductions

Unlike federal and state taxes, the Philadelphia wage tax does not allow most deductions. However, contributions to employer-sponsored retirement plans (401k, 403b) are exempt from the wage tax. Maxing out your retirement contributions is doubly valuable in Philadelphia.

Consider Living Outside City Limits

Moving just across the city line to Montgomery County or Delaware County drops your local tax rate from 3.807% to the non-resident rate of 3.44% — and if your employer is also outside the city, you avoid the Philadelphia wage tax entirely.