COVID-19’s Lingering Effects on Philadelphia’s Wage and Earnings Tax

When the COVID-19 pandemic ushered in remote and hybrid work, Philadelphia officials wondered how it would affect their wage and earnings tax, especially the portion paid by nonresidents who commuted into jobs based in the city. 

Revenue from the nonresident wage tax has long been a key part of the city’s finances, and is nearly half of the city’s annual revenue. In fiscal year 2024, it raised an estimated $848 million from nonresidents who use fewer public city services and pay a lower rate than residents. An analysis published in October by The Pew Charitable Trusts’ Philadelphia research and policy initiative shows that the makeup of this levy has changed, with proportionally more tax coming from Philadelphians and proportionally less from nonresidents. Controlled for inflation, the amount raised by the nonresident tax has dropped substantially over the past 10 years.

“While remote and hybrid work has reduced the number of commuters working in the city, the improved strength of the city’s economy has bolstered the resident share of the wage tax by producing increased jobs held by Philadelphians,” says Katie Martin, who directs Pew’s Philadelphia initiative.

She says that through all these changes, the tax has continued to produce about half of all locally generated revenue for city government—an estimated $2.51 billion in fiscal 2024 and a projected $2.63 billion in fiscal 2025, which began July 1. 

For years, Philadelphia officials have debated whether the city should be less dependent on the wage tax, which is considered to be more volatile than other revenue sources. Some argue that the tax hurts the city’s ability to retain businesses and residents. But the tax still brings in hundreds of millions of dollars each year from nonresidents, and removing it could put more of a burden on city residents through increases in levies that many nonresidents do not have to pay.

The latest research comes as Philadelphia officials currently debate the city’s overall tax structure via the Philadelphia Tax Reform Commission, which expects to release its findings in early 2025.