On June 23, the Philadelphia City Council passed a final budget for fiscal year 2023, resulting in changes to the wage and earnings tax rates. The new net profits tax (“NPT”) and school income tax rates will be applicable on income earned in tax year 2022 (returns due and taxes owed in 2023). A new business income and receipts income tax (“BIRT”) rate will be effective for tax year 2023 (returns due and taxes owed in 2024).
Starting July 1, 2022, the new resident rate for the wage and earnings taxes is 3.79%. The previous rate was 3.8398%. The new nonresident rate will be 3.44% for both wage tax and earnings tax. The previous rate was 3.4481%.
Employers must begin withholding wage tax at the new rate from all paychecks issued to residents and non residents after June 30, 2022. Both wage and earnings taxes apply to salaries, wages, commissions, and other employee compensation.
Similarly, Philadelphia’s NPT is decreasing for residents and nonresidents. The NPT is paid on the net profits earned from a trade, business, profession, or other for-profit activity conducted in Philadelphia. The new NPT rates are 3.79% for residents and 3.44% for non residents. These new rates will apply for net profits earned in 2022.
For tax year 2023, the net income portion of the BIRT will drop to 5.99% from its current 6.20% rate. This new BIRT rate will be effective for tax year 2023 (returns due and taxes owed in 2024).
The school income tax rate is also changing. Beginning with tax year 2022, the rate for residents will be 3.79% (previously 3.8398%). The new rate will apply to all applicable unearned income received in tax year 2022 (January through December 2022).
Please contact your Mazars professional for additional information.
Authored by: Harry Johnson and Harold Hecht