Philadelphia wage tax refund opportunities - tax year 2020
Since March 2020, numerous employers in Philadelphia have required their employees to work from home and adhere to stay-at-home orders due to COVID-19. So, certain taxpayers may be eligible for refunds.
There are two opportunities for refund of the Philadelphia wage tax.
1. Wage tax refund for nonresidents required to work from home
Philadelphia utilizes a “requirement of employment” standard applicable to nonresident employees whose employer’s base of operations are located within Philadelphia. Under this standard, nonresident employees are not subject to the wage tax when their employers require them to perform their duties outside of the city, including working from home. Any wages earned for days spent working within the city would be subject to the wage tax. This would include days prior to pandemic and stay-at-home orders. Please note wages earned working from home for the convenience of the employee would not qualify for refund even if allowed or approved by their employer.
Eligible nonresident employees may file a refund claim for the wage tax withheld while they worked from home, as required by the employer during 2020. The employee wage tax refund claim form will be available the first week of February 2021, via the City of Philadelphia's website. Claimants must include a copy of their W-2 along with a signed letter on employer letterhead stating they were required to work outside of Philadelphia.
Philadelphia residents are not entitled to this refund, regardless of where they work.
Alternatively, for the 2020 tax year only, due to the volume of claims expected to be submitted, employers are allowed to file wage tax refund claims on behalf of their employees. A special form has been created for this purpose and will be available on the City of Philadelphia's website. If the employer submits the claim, it must be for the group of nonresident employees required to work outside Philadelphia.
Reminder: The employee refund claim form is expected to be available during the first week of February; however, you can now access the website where the form, will be posted now.
The employer refund form may be uploaded to the e-file website. Refunds will be mailed directly to the employee; therefore, employers are encouraged to verify mailing address.
If an employer is submitting a refund claim, an employee does not file a claim. Only one party may file the refund claim.
2. Income tax-based wage tax refund
A Pennsylvania resident employee receiving a W-2 who earned wages of less than $100,000 may be eligible for an income tax-based wage tax refund. A link to this refund claim is below. Additional forms (PA-40 and PA Schedule SP 40) are required to be submitted with the refund claim. Employers are asked to provide the refund claim form with the W-2 for employees earning less than $100,000. An eligible employee should file the claim.
Access the income tax-based refund claim
Please note an employee may be eligible for both refund claims.
Should you have questions regarding this matter, please contact a member of the Baker Tilly state and local tax team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
