Can someone explain the Philly wage tax in elementary school terms.(Since I teach 3rd grade). I live in New Mexico now and have state tax is this similar. Not sure how much I pay but I am wondering if it is better live just outside of Philly or not...My wife and I are interested in the Mt. Airy section or maybe fishtown area otherwise in some suburb close.. Thanks in advance....Mike

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Looking to relocate to Philly....

Happy to do so (I used to be the City's Finance Director!)

The Phila wage tax is levied on earned income, wages and salaries----via payroll deduction. There is no minimum exemption level---you pay form dollar $1 earned. It does not apply to unearned income (although there IS a small school district income tax in the city,too). There are 2 rates---one if you are a Phila resident (regardless of WHERE you work) and a lower rate on non-residents who work in Phila. Now they are about 4.6% for residents and 3.9% for non-residents.....and scheduled to decrease by tiny amounts over the next 5 years. The taxes paid are deductible against your federal income tax, so the net rate you pay is really a function of whether you itemize and your federal marginal tax bracket.
Does that help?

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SPM

If you live in the city, you pay the wage tax (even if you work in the 'burbs).

If you work in the city and live in the suburbs, you pay a slightly lower wage tax.

If you live and work in the suburbs, you don't pay the wage tax.

I think working in the city and living in the suburbs is the most damaging to your pocketbook, because suburban property taxes are often higher and the wage tax difference isn't all that much.

If you're already working in the city and you're buying a house, take a good look at your property taxes for houses you like in the city vs. the suburbs and compare it to the wage tax you pay. I found that the extra property tax we'd pay living in the suburbs was more than what we'd save in wage tax, or something weird like that -- I forget the details exactly.

In the end we moved to the city because we knew we wouldn't be happy anywhere else, and we're paying dearly for it. Sigh.

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Monica

The Philadelphia Wage Tax is what makes Philadelphians literally the most taxed people in the entire country. Federal taxes, plus Pennsylvania income taxes (which just went up), PA sales tax, plus Philly sales taxes, plus the Wage Tax = overtaxation.
I came from a town in Indiana where we had a wage tax, but it was done the right way. We levied the higher taxes on people who lived in the suburbs and came into the city to work. Those people come into the city, use city services, use city roads, and take their wages out of city to their own communities. By putting the higher burden on them, you capture more revenue before it can leave your city.
Unfortunately, that will never be done here. It just makes too much sense. Therefore, people will continue to flee the city in a mass exodus, business will continue to relocate elsewhere, and the Philadelphians will continue to elect leaders who are big fans of status quo. That's the wage tax.

what is the state income tax rate...also city sales tax...thanks

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Looking to relocate to Philly....

The Pennsylvania Income Tax was just increased from 2.8 to 3.07% That's an increase of 10 percent. Sales taxes are 6% for the state and an extra 1% in the city. Philadelphia Wage Taxes are roughly 4.5% for city residents and 3.9% for workers who are non-residents.

The wage tax is avoided my many, I lived on the far west end of the city for some time, many friends that worked in the burbs and lived in the city made their work address a PO box in a suburban town that was close, or their parents homes. I was stupid and didn't get the PO box and paid wage taxes, while my accountant nieighbor got a PO box!

No wage taxes paid.

Then for homeowners in the city property taxes are basically nothing compared to the burbs, if you move to the burbs, your property taxes will be more damaging than wage tax + property tax in philly, so it is a wash. While I hate the wage taxes, most people that use that as a reason to flee don't REALLY know how to work around it (i.e. PO box if you live in the city / work in the burbs or buy a house).

If you rent in philly and work in philly it's harder to escape.

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I read somewhere on this blog something abotu dedeucting your wage taxes form yoru federal taxes. was it hal? please tel me more.
also, hoosier me, you aren't talking about gary are you? NYC eliminated the commuter tax and people still moved in b/c biz moved back in. people will pay a higher premium to live in the city, but there are limits to how high a premium.

The town in Indiana I was referring to is Kokomo. Their version is called the Economic Development Income Tax, or EDIT tax.

If you pay the wage tax, and if you itemize on your tax return, you can deduct the amount of wage tax paid from your taxable income. This also applies to the state income tax.

See, el, though we disagree on many suburban issues, I'll still help you.