Can I Deduct This

Philadelphia Tax Deductions Guide 2025 | Wage Tax, Property Tax & What PA Residents Can Deduct

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Philadelphia residents face one of the highest combined tax burdens of any city in the country. On top of federal income tax, Philadelphians pay Pennsylvania’s 3.07% state income tax, a 3.75% city wage tax, and school district taxes — making the total marginal rate for a Philadelphia resident earning $80,000 well above 30% before federal taxes. Understanding every deduction available at each level is essential to managing that burden.

Philadelphia Wage Tax: The Biggest Number Most Residents Miss

The Philadelphia Wage Tax applies to all compensation earned by Philadelphia residents — regardless of where they work — at a rate of 3.75% for residents. Non-residents who work in Philadelphia pay 3.44% on Philadelphia-sourced wages only.

For most Philadelphia residents, the wage tax is withheld automatically by their employer. But several scenarios create underpayment or overpayment issues:

  • Remote workers who moved to Philadelphia: If you moved to Philadelphia but your employer still withholds based on your old address, you may owe Philadelphia wage tax without realizing it.
  • Employees working outside Philadelphia: Philadelphia residents who work outside the city can claim a credit against the wage tax for local taxes paid to another municipality — but only up to the Philadelphia resident rate (3.75%). If you work in a suburb with a 1% EIT, you get a 1% credit, not a full offset.
  • Self-employed Philadelphians: Instead of wage tax, you pay the Philadelphia Net Profits Tax (NPT) and Business Income and Receipts Tax (BIRT) — a completely different structure. The NPT rate for residents is approximately 3.75%; BIRT has both a gross receipts component and a net income component.

Philadelphia Wage Tax Refund for Remote Workers

Since 2020, Philadelphia has allowed residents who work outside the city to request a partial wage tax refund for days worked outside Philadelphia. If you’re a Philadelphia resident who worked remotely from home (outside the city) for part of the year, you may be eligible for a pro-rated refund of the wage tax for those days.

The refund is calculated by multiplying your annual wage tax paid by the percentage of working days spent outside Philadelphia. You must file a Wage Tax Refund Petition with the City of Philadelphia’s Revenue Department — it is not automatic and requires documentation of remote work days from your employer.

Property Taxes in Philadelphia

Philadelphia’s property tax rate is approximately 1.3998% of assessed value. Assessment is based on 100% of market value, which Philadelphia has been reassessing more frequently in recent years — leading to significant increases for longtime homeowners in rapidly appreciating neighborhoods like Fishtown, Point Breeze, and South Philadelphia.

Remember: property taxes are not deductible on the Pennsylvania state return (PA-40). They are deductible on the federal return up to the $10,000 SALT cap, combined with PA state income taxes. For most Philadelphia homeowners, the combination of city wage tax (deductible on federal return as state/local taxes) and property taxes will quickly hit and exceed the $10,000 SALT cap.

Philadelphia Homestead Exemption

Owner-occupied Philadelphia properties qualify for the Homestead Exemption, which reduces the assessed value of your home by $100,000 for property tax purposes. On a home assessed at $300,000, the homestead exemption reduces the taxable assessed value to $200,000 — saving approximately $1,400/year in property taxes. Apply once through the Philadelphia Office of Property Assessment; the exemption renews automatically.

Philadelphia Senior Citizen Tax Freeze

Philadelphia residents aged 65+ with income under $33,500 can freeze their property assessment at its current level through the Senior Citizen Tax Freeze program. This prevents assessment increases from raising your property tax bill — a significant protection in appreciating neighborhoods. Apply through the Office of Property Assessment.

PA Property Tax/Rent Rebate: Up to $1,500 in Philadelphia

Philadelphia is one of three cities (along with Pittsburgh and Scranton) where the Pennsylvania Property Tax/Rent Rebate program pays a supplemental “kicker” on top of the standard rebate. Eligible Philadelphia seniors, widows/widowers, and people with disabilities can receive up to $1,500 in total rebates — $1,000 standard plus $500 supplement — for incomes up to $8,550. The program covers incomes up to $48,110 at reduced amounts.

PA Unreimbursed Employee Expense Deduction: Especially Valuable in Philadelphia

Pennsylvania allows W-2 employees to deduct unreimbursed ordinary and necessary job expenses directly from PA compensation — something the federal return no longer allows. For Philadelphia workers with significant job-related expenses (tools, required equipment, professional dues, home office costs required by employer), this PA-only deduction reduces the 3.07% PA state tax on those amounts.

Unlike the federal home office deduction (which requires self-employment), Philadelphia employees can deduct a home office on their PA return if their employer requires them to work from home and does not provide a dedicated office space. This is distinct from and in addition to any federal home office deduction available to self-employed workers.

Federal Deductions That DO Apply to Philadelphia Residents

While PA state deductions are limited, federal deductions still reduce your federal tax liability. Key ones for Philadelphians:

  • Mortgage interest: Deductible federally up to $750,000 loan balance. Philadelphia’s housing market, while more affordable than NYC, has appreciated significantly — many Center City and Northern Liberties buyers have loans in the $400K–$700K range where this is fully applicable.
  • SALT deduction: City wage tax plus property taxes, capped at $10,000. Most Philadelphia homeowners with $8K+ in property taxes and any meaningful state/local income tax will hit the cap.
  • Home office deduction: For self-employed Philadelphians, the actual expense method is especially powerful given Philadelphia’s rising rents and purchase prices.
  • Self-employed health insurance: 100% above-the-line on the federal return.

Working Pennsylvanians Tax Credit

Pennsylvania’s new state-level earned income tax credit — the Working Pennsylvanians Tax Credit — launched in 2025 and is available to qualifying lower-income Philadelphia workers. Given Philadelphia’s large population of low-to-moderate income workers, this credit is worth claiming. Calculate your eligibility through the PA Department of Revenue’s myPATH portal.

Key Resources for Philadelphia Taxpayers