If you have earned income in Pennsylvania, in addition to the state income tax you may also be subject to the local income tax. This is a tax on wages or earned income that is split between the municipality and the local school districts. Local taxes may be withheld from your wages if you work for an employer in Pennsylvania. If you have earned income from work you do independently, you may also be subject to this tax and have to file a local tax return.
As indicated on the Pennsylvania Department of Community and Economic Development website, net profits for purposes of local taxes in Pennsylvania include net income from the operation of a business, profession, or other activity, except for corporations. This does not include income that is not from services, such as earnings on investments. If you are in the farming business, net profits for purposes of this local tax do not include interest income or gains on the sale of livestock, farm equipment, or other capital assets of the farm.
The Taxable Income and Deductions Reference Guide posted on the Pennsylvania Municipal Services Co. website explains that in the case of self-employed individuals, net profits for purposes of the local net profits tax is the same as the net income reported on the Pennsylvania state income tax return. Copies of the applicable schedules from the state income tax return must be attached to the local tax return.
According to the Pittsburgh Department of Finance, the earned income tax, commonly called the wage tax is 1% and applies to residents of the city and school district and nonresidents who work in the city. The tax applies on wages you receive from an employer. Mileage and overnight business trips required by your employer can generally be deducted. The earned income tax also applies on self-employment income for services you perform. Active military duty pay is excluded, as well as social security and investment income such as interest income, dividends, and capital gains. You must file an annual earned income tax return by April 15. If you are self-employed, you may have to make quarterly estimated tax payments during the year.
In Philadelphia, residents who work in the city will have the local wage tax withheld from their wages. Philadelphia residents or non-residents who work in the city and do not have the city wage tax withheld from their pay must file and pay the earnings tax. This would apply, for example, on employees in Philadelphia who work for out-of-state employers.
If you operate a trade, business or profession and are a resident of Philadelphia, you are subject to the net profits tax even if you operate the business outside of Philadelphia. If you are a non-resident, you are subject to the net profits tax if you conduct business in Philadelphia. You must make estimated quarterly payments and file an annual return.
Local taxes in Pennsylvania are administered by local tax authorities, including municipalities, school districts or counties. Therefore, to find out more about the requirements for filing and paying the local tax, you should contact your local tax authority. The Pennsylvania Department of Revenue provides a tool for you to look up information by location.
Earned Income Tax, Pennsylvania Department of Community and Economic Development
Earned Income Tax, Pittsburgh Department of Finance
Earnings Tax, City of Philadelphia Revenue
Net Profits Tax, City of Philadelphia Revenue
PA Local Taxes Explained, Pennsylvania Municipal Service Co.
What taxes are imposed on a local level? Pennsylvania Department of Revenue