Everyone living or working in Philadelphia knows the significant wage tax burden that comes along with the privilege. At its height, the Philadelphia Wage Tax reached 4.96% in 1985. Since the mid-1990s, rates have slowly dropped. But did you know that certain low-income taxpayers may qualify for a 0.5% reduction in their Philadelphia Wage tax and are due a refund?
As with most things in Philadelphia, there are several hoops through which taxpayers must jump to get the refunds they are due. The first, and probably most important, step is knowing they qualify for this refund opportunity.
The City of Philadelphia has mandated in Chapter 19-4000 of the Philadelphia Code that Philadelphia Employers send advertisements about the Federal Earned Income Tax Credit (EITC) with Forms W-2 to their employees. The City partnered with The Campaign for Working Families Inc. and Pathways PA to create an advertisement flyer so taxpayers are informed. Most people already know about the Federal EITC Program, so we are not sure how effective or necessary this required advertisement is. Either way, we are glad it exists.
What surprises us, is that the City of Philadelphia has an important program where they reduce Wage Taxes by 0.5% for taxpayers eligible for the Pennsylvania Special Tax Forgiveness but do not create specific material advertising it nor do they have any law mandating employers educate employees about the program. Instead they suggest Philadelphia employers send a copy of the Income-Based Wage Tax Refund Petition Form to all of their employees with their Forms W-2.
In an email sent to employers from the City in December 2018, they explain the Income-Based Wage Tax Refund Program and politely ask that employers send “eligible employees” a copy of the related Refund Petition Form. Employers have no way of verifying if an employee is eligible since they would need a copy of their employee’s PA tax return to determine eligibility.
It would make a lot more sense, and benefit those who may qualify, if Philadelphia would create an advertisement like the EITC flyer to promote this important program. Or, for simplicity sake, add it to the existing flyer already required to be distributed to employees.
Philadelphia’s Revenue Department - A Rube Goldberg Machine
What is even more bothersome than lack of advertising is the complexity involved for eligible taxpayers to get refunds they are due. A taxpayer must know about the program, figure out if they qualify, complete and mail the refund petition with all required attachments to eventually receive the refund they are due.
Philadelphia employers may not reduce employees’ wage tax withholding rates for employees who qualify for the reduced wage tax rate. This makes sense since it is impossible for an employer to know if an employee qualifies without reviewing their PA tax returns.
To receive the 0.5% wage tax refund, taxpayers must be eligible for PA Schedule SP tax forgiveness. Generally, to be eligible, you must meet these income requirements based on your marital and federal filing status, number of dependents, and income. A completed Schedule SP must be attached to the Philadelphia Income-Based Wage Tax Refund Petition (not to be confused with the other Philadelphia wage tax refund petitions that also exist) along with copies of all the taxpayer’s Forms W-2. The City will then verify the Schedule SP was filed with and approved by the state prior to issuance of any refunds. A petition will not be deemed complete until information is received from the State and eligibility is verified. This required verification may delay the receipt of refunds by taxpayers significantly.
But wait, it gets better. Spouses must each file an Income-Based Wage Tax Refund Petition with all required attachments if they both qualify. There is no ‘joint filing’ option!
The Good News
All refunds under this program are still available, but only until April 15, 2019.
The Income-Based Wage Tax Refund Program became effective during the 2015 tax year and there is a three-year statute of limitations to claim a refund. This means any claim for refund under this program must be filed within three years from the date the tax was paid, or due, whichever date is later. That means 2015 petitions may be filed as late as April 15, 2019; since 2015 wage taxes were due on April 15, 2016. Thus, taxpayers still have time to request all refunds available under this program. But time is of the essence! After April 15, 2019, 2015 refunds will no longer be available.
The Moral of The Story
Philadelphia has great programs available that benefit some of our most vulnerable citizens, but if those citizens don’t know about them, or cannot navigate them due to their complexity, the programs might as well not exist. Knowledge is power, spread the word!
If you know someone that may benefit from the Income-Based Wage Tax Refund Program, please send them this blog or suggest they contact the Campaign for Working Families, Inc. who can assist them with their Philadelphia refund petitions and other tax filings. This organization has many sites throughout PA and NJ.
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