In a recent move to alleviate the financial pressure on its citizens, the Philadelphia City Council has approved a budget for Fiscal Year 2026 that includes tax cuts for both residents and businesses, as well as an extension for a major property tax relief program. The announcement, made last week, outlines a plan to incrementally reduce the city's Wage Tax and business taxes over the next several years, as per the City of Philadelphia.
Starting in FY26, residents will see their Wage Tax rate decrease from 3.75% to 3.70%, and non-residents from 3.44% to 3.39%. These new rates will come into effect for paychecks issued after June 30, 2025. Over the next five years, the council aims to further reduce these rates through FY30, to gradually relieve the tax burdens and to potentially attract more workforce to the city. Anyone paid after this date will need to ensure to have their paycheck reflects the new withholding rates, according to the information provided.
Employers are required to withhold the Wage Tax on behalf of their employees and remit it directly to the city. For those whose employers do not handle this tax, the obligation to file and pay the Earnings Tax lies with the individual. The city encourages individuals and employers alike to stay up-to-date with tax changes by subscribing to updates from the Philadelphia Tax Center.
Beyond the Wage Tax, the budget also touches on other tax categories. The Net Profits Tax (NPT) for residents is being reduced to 3.74% from 3.75%, and for non-residents, it is likewise dropping, from 3.44% down to 3.43%. The NPT applies to profits from trades, businesses, or any for-profit activities within Philadelphia. Similarly, the School Income Tax (SIT) — payable on various forms of unearned income — is set to decrease marginally for residents, down to 3.74% from the previous 3.75%. This new rate will apply to income received in 2025, and taxes for it will be due in the subsequent year.
