The Pennsylvania Senate has approved legislation sponsored by Sen. Frank Farry (R-Bucks) to protect Philadelphia’s suburban communities from unfair tax burdens and ensure that local tax dollars go to the communities of local taxpayers.
Senate Bill 527 – the Commuter Tax Fairness Act – would return earned income tax dollars paid by non-residents to the municipalities where they live, rather than where they work.
“This legislation is about protecting taxpayers and restoring fairness,” said Farry. “Residents in my district and throughout Philadelphia’s suburbs are tired of seeing their local tax dollars used to prop up budgets in places where they don’t live. These funds should be reinvested in their own communities – for local police, fire protection, infrastructure, and schools.”
Under current law, Philadelphia’s special status as a home rule charter city allows it to retain 100 percent of the 3.44 percent wage tax paid by commuters who live in surrounding communities. Senate Bill 527 would end this inequity and align Philadelphia with all 2,560 municipalities in Pennsylvania.
Additionally, if the worker does not reside in the city but is employed by a company based there, they would not be required to pay the 3.44 percent tax. Instead, they would only be responsible for their local earned income tax.
Farry has been pushing this local tax reform since his days as a member of the Pennsylvania House of Representatives. He has reintroduced this legislation in each session since joining the Senate.
“This is a commonsense fix that puts taxpayers first,” Farry said. “I will continue to fight to ensure our suburban residents aren’t footing the bill for services they don’t receive. It’s time we reinvest those hard-earned tax dollars where they live and return what’s rightfully theirs to their own pockets.”
“There are literally people from our suburban counties who are working from home but being charged the Philadelphia wage tax,” said Farry. Previously, employers were allowed to apply for the return of the funds, but the city changed that policy a few years ago. COVID really highlighted the impact on those working from home and the wage tax. The city is charging a wage tax of 3.44 percent.”
For example, when the federal courts were closed during the COVID-19 pandemic, an employee had to pay 3.44 percent. “That employee who never left the confines of Bucks County during that period of time had a tremendous problem dealing with the city’s bureaucracy,” said Farry. “To the point that the employee gave up trying to recoup the wage tax they gave to the city then.”
“Quite frankly, if you are not working within the city, you shouldn’t be paying the taxes,” said Farry.
Farry said Philadelphia Finance Director Robert Dubow testified that the city would lose about $190 million in revenue if the change were adopted. Believing that number was too high, Farry told Dubow that Bucks County residents send the city around $12 million. For Montgomery County, it is around $20 million.
“So, where is the remaining $138 million coming from?” asked Farry. Dubow admitted the real amount was $70 million, Farry said.
“It constitutes a tax on the wages of hard-working Pennsylvanians from the counties outside of Philadelphia,” he said. “That is money that should be in the pocket of the taxpayer or in the coffers of one of the other 165 municipalities.”
“Bensalem Township is losing roughly $2.5 million annually,” said Farry. So, Bensalem property taxpayers have to make up that money, he said. “This is about tax equity. This is about treating all of our local governments the same across the commonwealth. This is not about repealing the wage tax. If you’re working from home, you should pay that 1 percent to your home municipality.”
The bill now heads to the House for consideration. Rep. Kristin Marcell (R-Richboro) is the main sponsor there.
“Every representative of the collar counties has constituents impacted by Philadelphia’s city wage tax,” said Marcell. “We should be working together to correct the issue. But unfortunately, not a single Democrat has co-sponsored my bill.”
