The City of Brotherly Love, home to The Tax Warriors, is high on most lists as a suitable place to live and work. Whether you are a new graduate, in the middle of your career, or a recent retiree, Philadelphia is an attractive choice for a new home. On the other hand, any of the charming surrounding suburban towns could be the ideal place for you. Today, we will examine a few considerations when deciding whether to live in Philadelphia or one of the surrounding suburbs...and, yes, taxes are one.
This wouldn’t be a tax blog without first examining the tax impact of your search for a new home in the Delaware Valley. For starters, there’s no getting around the Wage Tax on Philadelphia residents. This recently reduced wage tax of 3.8907% (effective July 1, 2017) is assessed on a Philadelphia resident no matter where their employer is located. If a non-resident of Philadelphia works for an employer within the city limits, 3.4654% Wage Tax (effective July 1, 2017) will be due.
To illustrate, suppose you live near Rittenhouse Square and make $100,000 per year; you will owe Philadelphia $3,890 of wage tax. This is true whether your employer is in Philadelphia or not. If you live in a Main Line suburb, South Jersey or Bucks County and your employer is in Philadelphia, you will owe Philadelphia $3,465.
Now, consider you live in the suburbs but also work in a Philadelphia suburb. Most Philadelphia suburbs in PA impose a local Earned Income Tax, which can be as much as 2%.
Real estate and sales taxes are other financial considerations. While the Philadelphia Wage Tax may be 2-4 times higher than the suburbs, Philadelphia’s real estate taxes are generally lower than the surrounding suburbs. A recent Pew Foundation study found the difference of the combined local income, property, and sales tax burden for a homeowner in Philadelphia versus the surrounding suburbs is at its lowest point in 15 years.
However, a 2017 study conducted by Zillow and Case.com found that living in the Philadelphia suburbs costs families (defined by having 2 children in childcare) nearly $14,000 more than living in the city. So, depending on what you are looking for, the conclusion of which location is beneficial will be fact driven.
Don’t overlook commuting costs in your economic analysis. A Philadelphia resident who can walk to work or take the city subway or a bus, avoids regional SEPTA passes or daily automobile expenses (and the related aspirin and ibuprofen costs for traffic-induced headaches).
Besides taxes, the considerations come down to preferences and circumstances. Space, parking, school choices, access to the arts, restaurants, museums and major roadways are among the drivers you and your family must consider. These considerations are often more important than tax rates. As we will be the first to tell you, don’t let the tax tail wag the dog! However, for those with specific tax concerns related to moving into – or around – Philadelphia, The Tax Warriors are always happy to help. As is this great video called “The BEST of Philadelphia” by Cory J Popp. Enjoy!