Tax season is in full swing, and professional preparers are clicking away at their calculators. Understanding the fine details of income and business taxes can be challenging, and can even stump the pros from time to time.
The Department of Revenue knows this, and regularly reaches out to tax preparers and business owners. We share the latest tax laws, credit and filing information at events. We also field an important number of questions via email and over the telephone.
Abu George is a Tax & Revenue Conferee with the Department of Revenue. He worked with the Revenue auditing unit for six years, and has spent the last four years as part of our highly-knowledgeable technical staff.
We asked him to answer five recent questions.
Does a taxpayer who receives Army Reserve pay for reserve duty within Philadelphia subject to the employee Earnings Tax?
Abu George: Yes. Army pay for reserve duty is subject to the Earnings Tax. Only active military pay received for active duty is tax-exempt in Philadelphia.
Section 104 (4) & (5) of the Income Tax Regulations can be reviewed on our website.
Do employees who work remotely from another state pay any Philadelphia business taxes if their employer is based in the city?
AG: When a Philadelphia-based employer requires an employee to work from home, or other remote office, and the employer has no designated place for him or her here in Philadelphia, then the employee is not subject to the City’s Wage Tax.
However, if the employee has the option of working from an office or home in Philadelphia, but chooses to work remotely for his or her own convenience, the employee is subject to the Wage Tax on his or her full compensation.
Are the wages paid to clergy (ministers) taxable in Philadelphia? Also, is his or her housing allowance taxable?
AG: Clergy payroll is taxable under the City’s Wage or Earnings taxes, along with the housing allowance. Our legislation states the following:
- (13) Board or Lodging to Employees for Convenience of Employer. The value of meals or lodging furnished to employees by the employer for the latter’s convenience shall not be considered as wages earned. Where, however, board or lodging is provided by the employer and the employee is not required to reside on the premises by his employer, the fair market value of the board or lodging shall be included in his (employees) earnings.
Meaning, if the church or temple provides a housing allowance, and the clergy is required to live near the church, then the allowance is not subject to Wage or Earnings taxes.
Are dividends accruing in an IRA, Roth IRA, or other retirement plans subject to the Philadelphia School Income (SIT) Tax?
AG: Our policy regarding distribution/withdrawal from IRA, Roth IRA, 401K and other retirement plans are as follows:
IRA and Roth IRA
- At retirement age: Distribution/withdrawal (both employee’s contribution and accumulated earnings) are not taxable.
- Early Retirement: Distribution/withdrawal (employee’s contribution) is not taxable.
- Early Retirement: Distribution/withdrawal (accumulated earnings) is taxable under Philadelphia’s School Income Tax (SIT). See Line 8 of SIT return.
401K and other retirement plans
- At retirement age: Distribution/withdrawal (both employee’s contribution and accumulated earnings) are not taxable.
- Early retirement: Distribution/withdrawal (employee’s contribution) is not taxable.
- Early Retirement: Distribution/withdrawal (accumulated earnings) is taxable under Philadelphia’s Wage and Earnings taxes.
Does this year’s mandatory [Business Income & Receipts Tax] BIRT estimated payment have to be 100% of last year’s BIRT tax due?
AG: Taxpayers can file their BIRT return for the current tax year with a smaller amount for the mandatory estimated payment. When the next year is filed, if the amount of the mandatory estimate paid was lower than the actual amount owed, then the taxpayer will be billed the difference. They will also be billed a penalty and the interest on the difference from when the original filing mandatory estimate was due.
The answer to many tax questions can be found on the Department of Revenue’s website. Preparers can also find a full list of forms and instructions by tax year online.
Professional preparers can also send technical questions via email to revenuetaxadvisers@phila.gov.
