Philadelphia business owners are facing a significant shift in tax policy that could affect their bottom lines come 2026. In a recent announcement detailed by Philadelphia's official website, the city will be altering crucial exemptions that have historically aided businesses financially.
Flying under the radar for some, the Business Income and Receipt Tax (BIRT) exemption of up to $100,000 will be off the table when businesses file their 2025 taxes. As reported by the city's official news outlet, "Tax Year 2024 is the last year to use the $100,000 BIRT exemption." For the first time, businesses will have to file and pay the BIRT without this cushion come 2026. As well, there is another notable exemption removal that businesses should already start to prepare for - the annual $2,000 Use and Occupancy Tax (U&O) exemption, which will cease to exist starting January 1, 2026.
It's particularly noted that the U&O tax, a monthly due expense for businesses utilizing property in Philly, must be paid by the 25th of each month, although there's an option to settle the year's obligation in a single payment for eligible taxpayers. This exemption, helping businesses save annually, won't see the light of day after December 2025. The first U&O tax payment without the benefit of the exemption will be expected on January 25, 2026, marking a new financial year that Philadelphia businesses will need to navigate.
However, there's a silver lining in the cloud of new taxation: a 60% credit against the Net Profits Tax (NPT) on the net income portion of BIRT payments is still in play. As per city communication, "you can take a credit against the Net Profits Tax (NPT) of 60% what you paid on the net income portion of BIRT." Despite the potential increase in BIRT bills, the subsequent decrease in NPT liability may offer some solace to those concerned about rising tax costs. For many businesses, speaking to a tax professional well-versed in the local tax legislation has never been more crucial.
