There’s a new tax refund available in Philadelphia this year!

Pictures of Tax Forms

A lot of people don’t know this, but Philadelphia has its own income tax! If you work at a job in Philadelphia and taxes are taken out, one of those taxes is for Philadelphia – it’s almost 4% of your pay! Look at box 19 of your W-2 to see how much Philly tax you paid last year! If you made $25,000 at your job last year, that’s almost $1,000 of Philadelphia income tax.

That’s why City Council passed a new law which allows low-income people to claim a refund of more than half of the city tax that was taken out of their pay!

A person qualifies as low-income if they can claim Pennsylvania’s Special Tax Forgiveness credit on their PA state tax return. You can look at the Income Eligibility Table on page 2 of the City’s new Wage Tax Refund Petition form for Residents to see if you qualify, or ask your tax preparer! But, because it’s a new refund, not all tax preparers will be able to help claim the refund this year. So you may have to complete and send in that form yourself. (The law also requires your employer to give you a copy of the form when they give you your W-2.) The city may also have an online option for claiming the refund soon, and you can check on the city’s website.

Claiming the new refund for 2020 could be a bit tricky, because for 2020 it only applies to your earnings for the 2nd half of the year (for 2021 it will apply for the whole year). So you may need your paystubs to see how much you made at your job before and after July 1st last year. There is also a much smaller refund that applies to the first half of the year, and which has been available since at least 2015.

Is your employer not taking taxes out? If for some reason your employer isn’t required to withhold the city’s tax, you are supposed to file an Earnings Tax Return to pay your city taxes, where you can also claim the reduced tax rate. But, most employers in Philadelphia are required to withhold taxes, and if your employer was not taking taxes out, you should read about misclassification and contact us if you have any questions!

Do you live outside of Philadelphia? There is a separate form for non-residents to claim the low-income refund if you work in Philadelphia but don’t live in the city.

Are you self-employed?  If you have self-employment or business income, you are required to file a tax return with the city and pay a Net Profits tax, but you can also claim the reduced tax rate if you qualify as low-income.