Table 3
Fiscal 2019-24
Number of refunds | Total refunded | Average refund amount | |
---|---|---|---|
Fiscal 2019 | 12,042 | $29,473,266 | $2,448 |
Fiscal 2020 | 10,217 | $20,369,651 | $1,994 |
Fiscal 2021 | 26,415 | $66,354,772 | $2,512 |
Fiscal 2022 | 27,407 | $81,526,915 | $2,975 |
Fiscal 2023 | 23,316 | $76,841,536 | $3,296 |
Fiscal 2024 | 14,374 | $46,755,932 | $3,253 |
Source: Philadelphia Department of Revenue Note: The numbers for fiscal 2019 and 2020 are not strictly comparable to those for fiscal 2021-24. The earlier years include relatively small amounts refunded to employers who made payments in error. With the employer refunds excluded, the refund figures for 2019 and 2020 would be slightly lower. This data covers only the wage tax, which is withheld by employers. It does not cover the earnings tax, which is not withheld. |
In fiscal 2024, the nonresident wage tax rate was 3.44%. Based on that rate, the average $3,253 refund would cover:
On the other hand, resident wage tax numbers have been relatively strong, largely because of the improved strength of the city’s economy. The unemployment rate for Philadelphia residents averaged 4.2% in 2023 and 4.4% through the first seven months of 2024, the lowest in at least 35 years.9 The number of people working in Philadelphia—residents and nonresidents alike—grew from 664,000 in January 2021, the pandemic-related low point, to an estimated 777,000 in July 2024, the highest since the late 1980s.10
Many suburbanites appear to like working from home, and not just for tax reasons. Doing so allows them to save time and money by not commuting and to deal with family, personal, and household obligations more easily.
Getting them back to the city through tax policy is likely to be difficult. Marginal drops in the nonresident tax rate, which the city has enacted on and off for the last three decades, seem unlikely to move the needle; the income/wage tax gap between the city and its suburbs is too large. In many of those suburbs, there is no earned income tax. In others, residents not subject to the Philadelphia wage tax pay a local tax, generally 1%.11
For years, public officials in Philadelphia have been debating the case, made by some business leaders and fiscal analysts, that the city ought to become less dependent on the wage and earnings tax. The argument is that the tax hurts the city’s ability to retain businesses and residents, has proved to be more volatile than some other revenue sources, and may be a less-than-perfect match with the decreased necessity of in-person work.
But shifting away from a tax that still brings in hundreds of millions of dollars each year from nonresidents— people who arguably owe their jobs to the city’s economy but require less in direct city services—could put more of the burden on city residents through increases in levies that many nonresidents do not have to pay. A Philadelphia tax reform commission—created by City Council in the spring of 2024, with members named by the council, Mayor Cherelle Parker, Philadelphia’s various chambers of commerce, and others—is to make recommendations on the city’s overall tax structure by the end of 2024.12
Beyond tax policy, the Parker administration’s stated goals are to create a city that is safer, cleaner, and greener, with access to economic opportunity for all.13 This effort may help encourage nonresident workers to spend more of their work and leisure time in the city. It also could form the basis of a resident retention and attraction strategy.
In addition, Mayor Parker has expressed her desire to have more city businesses require employees to come into their city offices more often. Her administration ordered all municipal employees to return to in-person work five days a week as of July 15, 2024; some had been working hybrid schedules.14 Because most of those workers are city residents, the policy will have very little impact on wage tax revenue.
Progress on those fronts and other factors could have some impact on the numbers. In any event, city officials say, the share of the tax paid by nonresidents appears to have stabilized for now.
The wage tax amounts paid by residents versus nonresidents are not reported by the city on a fiscal year basis; the Revenue Department reports them on a calendar year basis, with the published data going only through the end of 2022.15
Pew extracted the fiscal year numbers from the data included in the Quarterly City Managers Reports (QCMR), which are prepared by the city’s Finance Department and published four times a year. To conduct the analysis for each fiscal year, Pew used what the city calls the “actual” revenue—that is, the revenue received for each fiscal year—as reported in Table R-2 of the QCMR for the year. Pew used the number listed in the table included in the report published on May 15 of the following year, thereby allowing officials time to arrive at a final figure. For fiscal 2023 data, for instance, this would be the QCMR for the period ending March 31, 2024. The figures for fiscal 2024 (estimated) come from the QCMR for the period ending June 20, 2024, the column of Table R-2 labeled “Current Projection.” The numbers for fiscal 2025 (projected) come from the Mayor’s Operating Budget in Brief for Fiscal 2025, as adopted by City Council in March 2024 under Wage, Earnings, and Net Profits Tax Projection—City and PICA.
(Fiscal year data on the makeup of the wage tax can also be extracted from the Revenue Department’s City Monthly Revenue Collections reports, using the year-to-date numbers for June of each year, because the fiscal year ends June 30. The numbers there are identical to the QCMR figures in most cases, and quite similar in others.)
In the QCMRs, the relevant numbers for this analysis are found near the bottom of Table R-2 in a section labeled “Analysis of City/PICA Wage, Earnings, and Net Profits Tax.” On the third line of that section, the city lists the total raised by the wage and earnings tax—the amount paid by both residents and nonresidents—for the preceding fiscal year. On the second line, it lists the amount raised by what’s known as the PICA tax; PICA stands for the Pennsylvania Intergovernmental Cooperation Authority, a state fiscal oversight agency. The PICA tax is a portion of the wage and earnings tax amounting to 1.5% of all taxable wages earned solely by city residents. (The money is channeled through PICA before coming back to Philadelphia once the authority approves the city’s five-year financial and strategic plan.)
Pew used these two numbers—the PICA tax and the total raised by the wage tax—to determine the full portion paid by residents for any given fiscal year, which then allowed us to determine the portion paid by nonresidents.
To get the residential amount, we took the PICA tax total and multiplied it by the ratio of the full city resident tax rate for that year to the PICA rate of 1.5%, which does not change from year to year. Doing so yields the entire residential portion, which we then subtracted from the overall wage tax total to get the nonresidential portion. As an example, here’s how we calculated the results for fiscal 2023:
According to the QCMR for the period ending March 31, 2024, the total raised by the wage and earnings tax in fiscal 2023, for residents and nonresidents combined, was $2,361,048,000, and the amount generated by the PICA tax was $628,206,000. The wage tax rate for residents that year was 3.79%. To calculate the full residential portion for that year, Pew divided 3.79% by the 1.5% PICA rate and multiplied the resulting ratio (2.52666) by the $628,206,000 PICA tax. The result was $1,587,267,000, the full residential portion. We then subtracted that from the combined total of $2,361,048,000 to get the nonresidential portion, which was $773,781,000. The share of the total paid by nonresidents—$773,781,000 divided by $2,361,048,000—was 32.8%, leaving a share of 67.2% paid by residents.
To adjust for inflation from 2019 to 2024, we relied on the consumer price index inflation calculator from the U.S. Bureau of Labor Statistics, using January 2019 to represent fiscal 2019 (July 1, 2018, to June 30, 2019), and January 2024 to represent fiscal 2024 (July 1, 2023, to June 30, 2024). This produced an inflation rate of 22.53% for the five-year period. To convert 2019 dollars to 2024 dollars, we multiplied the 2019 dollars by 1.2253. To get the percentage change, controlled for inflation, we subtracted the 2019 adjusted figures from the 2024 figures, then took the resulting numbers and divided them by the adjusted 2019 figures.