Philadelphia Wage Tax for Employers: Rates, Registration, and Filing

Who has to withhold the Philadelphia Wage Tax

The Philadelphia Wage Tax is a city tax on salaries, wages, commissions, and other pay. Employers collect it by taking it out of each paycheck and sending it to the City. Two groups of workers pull you into it.

The first group is Philadelphia residents. If an employee lives in the city, you withhold the resident rate on their pay, even if they never set foot in your office and even if your company sits in Montgomery County or Delaware County. Residency, not your address, is the trigger.

The second group is non-residents who work in Philadelphia. If an employee lives in the suburbs but does their job at your Center City office, you withhold the non-resident rate on the pay they earn for work performed in the city. A company with no city employees in either group does not owe this tax.

One exception applies to companies based outside Pennsylvania. The City says out-of-state employers do not have to withhold the Wage Tax if they have no physical location in Pennsylvania or are not subject to the City’s Business Income and Receipts Tax. In that case, the employee pays the City’s Earnings Tax directly.

Most growing companies in the region hit this rule earlier than they expect. One remote hire who lives in South Philadelphia is enough. So is one salesperson who moves from Cherry Hill to Fishtown mid-year. When that happens, the clock in the next section starts.

Current rates and the five-year reduction schedule

The City posts the rates on its Wage Tax page for employers. As of July 1, 2026, the resident rate is 3.735 percent and the non-resident rate is 3.425 percent. In the prior year, the rates were 3.74 percent for residents and 3.43 percent for non-residents.

Those small drops are not one-time changes. In June 2025 the City enacted Bill 250195, which sets a phased reduction across the City’s fiscal years 2026 through 2030. Each fiscal year begins July 1, so each step down lands on July 1 with that year’s budget. The accounting firm Wouch Maloney summarized the July 1, 2026 step in a client note that matches the City’s posted figures.

For you, the reduction schedule means one thing: the rate you loaded into payroll last year is probably wrong this year. Most payroll vendors update the rate automatically, but you should confirm rather than assume. A rate that is off by a few hundredths of a percent still creates a mismatch when the City reconciles what you filed against what you paid.

One more point on the two rates. The resident rate is always the higher one. If an employee both lives and works in Philadelphia, you withhold the resident rate only, not both.

How to register

You register as a wage tax withholding employer with the Philadelphia Department of Revenue. Registration happens online through the Philadelphia Tax Center, which is the City’s tax portal for businesses. You will set up an account, add the Wage Tax as one of your tax types, and receive a City account number that your payroll vendor needs.

The 30-day window runs from the hire, not from your first pay date. If you hire someone on the first of the month and your first payroll falls on the fifteenth, you still want the account open before that payroll runs. Otherwise you are withholding money you have nowhere to send.

If you already have a Philadelphia Tax Center account for another City tax, such as the Business Income and Receipts Tax, you add the Wage Tax to the same account. You do not create a second login. If you have no City account at all, allow a few days for your Tax Center account to be ready.

Once registered, hand the account number to whoever runs your payroll. Confirm that they have the City set up as a tax agency in your payroll platform and that the correct rate applies to each employee based on where that person lives and works.

Payment frequency by monthly withholding

You file a Wage Tax return every quarter. How often you pay depends on how much wage tax you withhold in a typical month. The City sets three tiers. All filing and payment is electronic through the Philadelphia Tax Center; paper is not an option.

To find your tier, take a normal month of Philadelphia wages and multiply by the rate. A company with a single city resident on payroll often lands in the quarterly tier. As your city headcount grows, you move into the monthly tier, and only larger payrolls reach the semi-monthly or weekly tier.

Your tier can change as you grow. If your withholding creeps above a threshold, the City expects you to move to the more frequent schedule. Check your tier once a year and any time you make a hiring push in the city. Paying late or on the wrong schedule is an easy way to draw a City notice.

If your payroll vendor files on your behalf, ask them which frequency they have on file for you and how they will know when to change it. Vendors do not always catch a tier change on their own.

Why the annual reconciliation went away

For many years, Philadelphia employers filed an annual wage tax reconciliation after the year closed. It matched total withholding for the year against the periodic returns already filed. The City has eliminated that separate annual filing.

In its place, the fourth-quarter return does the reconciling. When you file the return for the last period of the year, that filing closes out the year. There is no separate year-end reconciliation form to submit to the City.

This is good news for your calendar, but it raises the stakes on the fourth-quarter return. Any mismatch between what you deposited during the year and what your payroll records show needs to be caught before that return goes in. Build a quick year-end check into December: total the City tax withheld from all paychecks, total the payments made through the Tax Center, and make sure they agree.

You still issue W-2s that show local wages and the city tax withheld, and employees still need those numbers for their own filings. You also still send your W-2s to the City by the last day of February. If you have 250 or more W-2s, you must submit them electronically through the Philadelphia Tax Center. The change removes an employer form, not the employee-facing reporting.

How this interacts with Act 32 for suburban employers with city residents

Pennsylvania has a second layer of local income tax outside Philadelphia. It is called the earned income tax, or EIT, and it is governed by a state law known as Act 32. Under Act 32, employers withhold local tax based on where each employee lives and works, using a code called a PSD code that identifies each municipality and school district. Our Act 32 guide walks through that system step by step.

Philadelphia does not participate in the Act 32 collection system. The City runs its own wage tax and collects it directly through the Philadelphia Tax Center, not through the county tax collectors that handle EIT for the rest of the region. That is why a suburban employer with a city resident on payroll deals with two separate systems.

Here is what that looks like in practice. Say your company is in King of Prussia and you hire someone who lives in Philadelphia. For that employee, you withhold the Philadelphia resident wage tax and send it to the City. Your other employees, the ones who live in the suburbs, stay under Act 32, and you withhold EIT for them through your county collector.

The Pennsylvania Department of Community and Economic Development, which oversees Act 32, publishes FAQs on how local withholding works and how Philadelphia fits alongside it. Read those before you set up a city resident in a suburban payroll, and confirm the setup with your payroll vendor. The most common mistake is treating a Philadelphia resident like every other employee and withholding suburban EIT instead of the City tax.

If the situation is reversed, and your company is in the city but an employee lives in the suburbs, the employee is a non-resident working in Philadelphia. You withhold the non-resident wage tax on their city work. How that employee’s home municipality treats the Philadelphia tax they already paid is handled on their side, but it is worth knowing that the question exists so you can point them to their own tax advisor.

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