Hefty taxes kick back in for small Philly businesses
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A big new tax bill is hitting certain small businesses, gig workers and self-employed workers in Philadelphia this year.
Why it matters: Many businesses are likely unprepared and unaware that they need to start paying the city's Business Income and Receipts Tax (BIRT).
State of play: More than 50,000 businesses are expected to be subject to BIRT for tax year 2025 for the first time in more than a decade, per the Parker administration.
- The city estimates a roughly $35 million increase in revenues due to the new filers, even as the city cut certain businesses' taxes this year.
Catch up quick: Since tax year 2014, the city has had some form of BIRT tax break in place, which most recently was an exemption on the first $100,000 in gross receipts and a proportionate share of net income.
- The result: Most businesses in the city (roughly three-quarters) didn't have to pay it.
- So it came as a surprise last year when the Parker administration nixed the exemption due to a legal challenge based on Pennsylvania's "uniformity clause," requiring taxes be applied equally.
What they're saying: Erika Tapp Duran, director at Temple's Small Business Development Center, tells Axios that the loss of the exemption is a "major shift" for those businesses.
- "It's generating a real mess," she says.
- And Jeff Hornstein, executive director of the Economy League of Greater Philadelphia, tells Axios the change will disproportionately affect minority entrepreneurs operating at smaller scales.
Meanwhile, the Parker administration is offering free tax preparation services for small businesses earning less than $250,000 to help them navigate the tax.
How it works: BIRT is based on both net income and gross receipts.
- Businesses must pay a nearly 6% tax on their net income and another 0.14% on their gross receipts.
Behind the scenes: The city is on track to slash BIRT over more than a decade (although that's little comfort for businesses now).
- BIRT's gross receipts portion is expected to steadily decline until it's eliminated in 2039. The net income portion will be cut by more than half by then.
Threat level: The members of the Diverse Chambers Coalition of Philadelphia cited BIRT as a top concern in a recent coalition survey, saying it was the city's most burdensome tax.
What's next: New businesses subject to BIRT must file their taxes with the city for tax year 2025 by April 15.
- They don't need to pay estimated taxes for the following year.