What is the wage tax?
As a relocation specialist, I am often asked about the Philadelphia wage tax. Equally often, I find myself educating unsuspecting buyers about this tax. I don’t want them to be unhappily surprised when they receive a “light” paycheck. While Philadelphia is not the only municipality to levy a wage (or “earned income”) tax, the city’s is higher than most. If you reside and work in Philadelphia, you will pay 3.88% in wage tax. However, if you live outside of the city, but you work in the city, you will still pay 3.46%, as well as the local earned income tax where you live, if there is one. Some municipalities don’t have any (like Lower Merion), while many have between .5 and 1%. The city wage tax has long been an issue of contention. Read here (disregard the outdated figures) for its history.
What other taxes should I consider?
If you are considering where to purchase their new home in the Philadelphia metro area, look carefully at the earned income taxes. Make sure you understand what, if any, your municipality (if living outside the city limits) charges. If you have a choice whether to work in or out of the city, this tax is clearly something to think about. Additionally, our real estate taxes can differ widely from township to township, so pay close attention to the property taxes of different homes you consider. There is state income tax as well as sales tax (a bit higher within the city limits than outside). It’s important to have the full picture of taxes when budgeting.
While this city tax certainly affects total take-home income, it’s wise to keep a few things in mind. The most important mitigating factor is that, as a large east coast city, Philadelphia is much more affordable than its peers. The cost of housing is appreciably less than cities like Washington, New York and Boston. As a result, even groceries and other purchases cost less because the businesses supplying them have lower rents. One other bright spot: as the BYOB capital of the country, dining out can be way less expensive than in other cities.
If you are relocating to the Philadelphia/Main Line area, please go to my relocation tab. If you’d like to and read other blog entries related to relocation, please scroll down a couple of lines and click on RELOCATION (to the right of FILED UNDER). Thanks!