Philadelphia Wage Tax Refunds – Reboot
Many things have changed since the 2020 pandemic, attitudes toward sick days, the prioritization of our wellbeing, and some tax laws. One thing that has remained the same, however, is the Philadelphia city wage tax withholding requirements. The refunds for this tax apply specifically to non-resident workers in Philadelphia.
What are city wage taxes?
City wage tax applies to all wages earned by Philadelphia residents regardless of whether they work inside or outside of the city. Non-residents of Philadelphia are also subject to city wage taxes if they work inside the city. The rates for the city wage tax sit at around 4% for residents and 3.5% for non-resident workers.
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Rules for Philadelphia residents
There are different rules for both residents and non-residents of Philadelphia. If you are a resident of Philadelphia, you are eligible for refunds for city wage taxes paid to other local jurisdictions. These refunds can often be obtained via your employer.
However, regardless of whether you work inside or outside the city, you are eligible to pay city wage tax that is non-refundable. In most cases, your employer will automatically withhold these tax payments from your paycheck. If you notice that your employer is not automatically withholding the city wage tax, you may be liable to make the payments yourself. It is important to check your pay stubs to ensure that your owed tax is being paid.
Rules for non-residents
The rules for non-residents are different when it comes to city wage taxes. Much like Philadelphia residents who pay city wage taxes in other jurisdictions, the Philadelphia city wage taxes are refundable for non-resident workers. However, it is a little more complicated than that.
Where you physically work is not the only marker of whether you are eligible to pay city wage tax in Philadelphia. There is a ‘requirement of employment’ standard that is applicable, this standard affects whether or not you have to pay city wage tax. If your employer requires you to work outside of the city limits, you are exempt from paying the tax on money earned during such times. However, if a non-resident employee chooses to work from home for their own convenience, they are no longer exempt from paying the city wage tax due to a rule known as the Convenience of Employer rule. This rule applies to all instances of voluntary working from home, regardless of whether employer authorization has been obtained.
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How working from home affects wage taxes
With increased instances of mandatory working from home for many employees during the pandemic, the subject of city wage taxes becomes a little more complicated for non-residents.
The official statement from the Philadelphia local government was that during times of mandatory working from home, non-resident employees would not be subject to the city wage tax, citing the original “requirement of employment” rule. Because employees were required to work from home outside the city and were not doing so out of their own convenience, the tax did not apply.
Philadelphia residents who were required to work from home were still subject to the city wage tax due to their physical location being within the city limits.
Now that restrictions on workplace activity are loosening and people are returning to their offices, things get more complicated still. With the reopening of offices, employees “could” be subjected to the city wage taxes once again. The word “could” is used because there are certain conditions in which employees may still be exempt. For example, if an employer implements restrictions on the number of employees permitted to work physically within the office which results in some employees having to work from home still, they remain exempt from paying the city wage tax.
Once all restrictions have been lifted by an employer, all non-resident employees are once again subject to the city wage tax, regardless of whether they are working physically in a Philadelphia workplace, or are electing to continue working from home.
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How to obtain a refund
Now that the Philadelphia wage tax is being implemented as normal again, non-residents may be eligible for refunds. For some non-resident employees, the city wage tax may have been withheld incorrectly or unnecessarily during mandatory working from home. If you are a non-resident employee and believe that city wage tax was withheld from your paycheck when it wasn’t required, there are a couple of methods through which you can obtain a refund.
The Department of Revenue is allowing employers to submit refund requests in bulk on behalf of their employees. If your employer is submitting such requests on behalf of their employees you do not need to take any individual action, your refund should automatically be added to your paycheck
If your employer is not submitting bulk refund requests, you can now submit your own refund request via the online Philadelphia Tax Center. Simply select the “request wage tax refund” button to begin your refund request. The process does not require an account to be opened, making obtaining a refund easier for non-resident employees.
Non-resident employees can also request a refund via their personal tax advisor if this is preferential. Tax advisors may be able to expedite the refund process for you.
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As workplaces begin to return to the operating practices they had before the pandemic, city wage taxes are returning to normal also. With an increase in the number of employees being given the opportunity to continue working from home if they so choose, it is important to ensure that any city wage taxes owed are being correctly withheld from paychecks or paid manually.
Similarly, if city wage taxes were incorrectly withheld during mandatory working from home, employees may be eligible for refunds available through employers or the Department of Revenue.
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