Philadelphia’s Wage Tax Has Little Impact for Residents

Philadelphia has made small annual reductions to its resident wage tax rate for some three decades, since its high of 4.96% in 1995. It resumed the cuts in 2023, reducing the wage tax rate from 3.79% to 3.75%. However, an analysis from Pew’s Philadelphia research and policy initiative shows that on a year-to-year basis, the cut had little impact on the overall local tax burdens of resident households, reducing them by less than one-tenth of a percentage point.

Pew’s report, “The Local Tax Burden on Philadelphia Households,” found that the overall local tax burden was lowest, in percentage terms, on homeowners who receive the city’s $80,000 homestead exemption and highest on low-income renters of market-rate apartments. “The latest tax cut was not enough to change the imbalance in tax burdens in just one year, with highest-income homeowners seeing a $75 reduction in taxes owed per year while the reduction dropped to $49 per year for the highest-income renters,” said Thomas Ginsberg of Pew’s Philadelphia research and policy initiative.

Pew’s model was based on 10 hypothetical representative households with varying levels of income, property values, and consumer purchases. The $80,000 homestead exemption is widely used by homeowners but is not available to renters or their landlords. The model assumes that renters shoulder the property tax as part of their rent, which is typically passed on from landlords who are ineligible for the homestead exemption. Pew’s model did not analyze nonresident taxes.