Pauline focuses her practice on United States federal income tax. Her practice includes tax planning for mid-size LLC and partnerships, public financing, mergers and acquisitions, executive compensation, and tax controversy. Some of...Read More by Author
Businesses Now Allowed to File Philly Wage Tax Refunds for Non-Resident Employees
In 2020, many businesses have required their employees to work remotely due to the COVID-19 pandemic. The City of Philadelphia has responded to this paradigm shift by allowing businesses to file a group Wage Tax refund claim for their non-resident employees and providing additional guidance and forms for COVID-19 related Wage Tax refunds.
Philadelphia imposes a Wage Tax on all salaries, wages, commissions, and other compensation received by an individual for services. All Philadelphia residents regardless of where they work are subject to Wage Tax at the rate of 3.8712%. Non-residents who work in Philadelphia are also subject to City Wage Tax, but at the lower rate of 3.5019%. However, non-residents are not required to pay Wage Tax on the portion of their wages/salaries allocated to work performed outside Philadelphia. Employers are required to withhold Wage Tax from their employees who are subject to the tax and then pay that amount over to the City. Generally, if an employer withholds more Wage Tax from an employee than is due, the employee may obtain a refund for the overpayment by filing a Wage Tax Refund Petition with the City. Historically, only individual employees were allowed to file a refund petition.
For the first time and only for tax year 2020, Philadelphia announced in late January that it will allow businesses to file a group Wage Tax refund claim for their non-resident employees. The City has created the Employer-Requested 2020 Wage Tax Refund Form for this purpose. The business must provide for each employee:
- First and last name,
- Social Security Number,
- Current mailing address,
- The highest gross compensation on the W-2,
- The amount of Wage Tax withheld, and
- The calculated refund amount for 2020.
The City will pay the refunded amount directly to the eligible employees by sending a check to their current mailing address. Therefore, it is crucial that employers confirm their employees’ addresses before submitting the group refund claim. If the business files a group Wage Tax refund claim for their non-resident employees, then the employee is no longer allowed to file an individual Wage Tax Refund Petition.
For non-resident employees whose employers do not file a group Wage Tax refund claim, the City has provided a new online Non-Resident COVID EZ Refund Petition. This streamlined petition is only available to individuals who were required to work from home by their employer due to the COVID-19 pandemic. The petition must include the following:
- A letter from the employer for the dates required to work outside Philadelphia, and
- A complete W-2, which includes taxes paid in Philadelphia.
For non-residents working outside Philadelphia unrelated to the COVID-19 pandemic, the regular Wage Tax Refund Petition continues to be available for 2020. The new Wage Tax refund petitions for 2020 are available here.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.