All businesses, including sole proprietors, operating within the City of Philadelphia must pay the Philadelphia BIRT and a few other taxes.
City of Philadelphia Business Income Receipts Tax (BIRT)
The Philadelphia Business Income and Receipts Tax applies to all businesses operating in the City of Philadelphia. That even includes gig economy independent contractors like Uber Drivers and Shipt Shoppers.
The good news is that your first $100,000 in gross receipts is exempt from BIRT. That means almost all 1099 contractors in gigs like Lyft and Instacart don’t have to worry about BIRT.
If you have more than $100,000 in gross receipts, there are two parts to the Business Income Receipts Tax.
First, you pay 0.1415% on your gross receipts. That’s all the money you make not just your profits. Think of it kind of like a sales tax except you’re paying it not your customer.
Next, you’ll pay 6.41% on your taxable net income. This works like a traditional income tax.
Available Tax Credits
There are several tax credits you may be able to apply against your business income and receipts tax (BIRT).
Jump Start Philly
If you create at least six new jobs within your first two years of operations in Philadelphia, you may be able to claim an exemption from BIRT for your first two years.
You may also qualify for a waiver or reduction of certain Philadelphia licensing costs.
Job Creation Tax Credit
The City of Philadelphia also has a $5,000 Job Creation Tax Credit for businesses that create new jobs. To qualify, you generally need to add at least 25 new jobs or increase your full-time workforce by at least 20% within five years.
To find other possible credits or deductions, chat with a tax pro now.
Filing a BIRT Tax Return
Your City of Philadelphia BIRT tax return is typically due on April 15th for the previous calendar year. If you won’t owe tax, you still have to file either a BIRT return or a no tax liability form.
In your first year, you can file your tax return and pay the full tax due on April 15th.
In your second year, you must make quarterly estimated tax payments equal to 100% of your previous year’s taxes (25% per quarter). The quarterly payments are due on April 15 (when you file your first year return), June 15, September 15, and January 15.
In future years, you have to pay the full year’s estimated taxes no later than April 15 (a year before your BIRT return is due). The estimated tax payment is equal to 100% of your current year’s BIRT tax.
You can find Philadelphia’s BIRT forms here.
BIRT Return Extensions
You can request a 60 day extension to file a BIRT return by making an online extension payment of the tax you owe. Requesting more time to file does not give you more time to pay.
Philadelphia may also grant an additional extension if you receive a federal tax extension.
BIRT Return Penalties
The penalty for not paying BIRT taxes is 1.25% per month.
In addition, you’ll also owe interest at a rate that changes each year. The current interest rate is 5%.
Obtaining a BIRT ID
You’ll receive your BIRT ID number or Business Tax Account Number when you apply for your Commercial Activity License. You can find the application form here.
If you paid too much in BIRT, such as because of a decline in your gross receipts or net income, you usually have three options.
- Apply the extra amount to your current Net Profits Tax.
- Apply the extra amount towards your estimated taxes for next year’s BIRT return.
- Request a refund, but you may still have to pay estimated taxes unless you closed your business or fell below the $100,000 exemption.
Net Profits Tax
You’ll also pay a net profits tax if you’re a sole proprietor or partnership. Incorporated businesses don’t pay the net profits tax.
The net profits tax is 3.9102% for Philadelphia residents and 3.4828% for non-residents. This tax is in addition to the business income and receipts tax.
Unlike the business income receipts tax (BIRT), independent contractors won’t escape this tax. However, you will be on a level playing field with wage earners.
All employees working within the City of Philadelphia must pay a wage tax on their salaries, wages, commissions, and other compensation.
The wage tax has the same rate as the net profits tax — 3.9102% for Philadelphia residents and 3.4828% for non-residents.
Philadelphia employers generally must withhold this tax from their employees. Pennsylvania employers are also generally required to withhold wage tax for their employees who live in another Pennsylvania city.
If you’re a Philadelphia resident and your employer doesn’t withhold wage tax, such as because you work in another state, you’ll need to register for a Philadelphia Earnings Tax Account to pay your wage tax.
Business Use and Occupancy Tax
The Business Use and Occupancy Tax is effectively an additional property tax on businesses. It includes all businesses including a business you operate from your home.
The tax rate is 1.21% on the assessed value of your property over $165,000.