A New Year, a New Philadelphia Wage Tax Refund Option

The Philadelphia Department of Revenue recently released an exception to the Wage Tax Refund procedures for those pursuing a refund due to the COVID-19 pandemic.

Historically, employees have been responsible for applying for Wage Tax Refunds. However, as a result of the COVID-19 pandemic and the push for employees to work remotely, Philadelphia is allowing EMPLOYERS to submit a refund request on behalf of a group of their non-resident employees.

This option is only applicable for the 2020 tax year. Below is a summary of the guidance from the Philadelphia Department of Revenue.

Employer-Requested Refund Form (2020 Only)

Philadelphia has created a new form which is currently available at www.phila.gov/documents/2020-wage-tax-refunds/. The employer must provide the following information for each employee:

  • First and last name
  • Social Security Number
  • Current mailing address
  • The highest gross compensation on the W-2
  • Philadelphia withholdings
  • Calculated refund amount

Starting in February, employers will be able to upload the form on the City of Philadelphia’s Department of Revenue eFile/ePay website. The City will issue refund checks directly to qualifying employees. It is important that the correct and current mailing address be reported as part of the supporting documentation.

New Online Non-Resident and Income-Based Petitions

It is important for employers and employees to communicate who will be filing a Wage Tax Refund Petition. If an employer is submitting a petition on behalf of employees, employees DO NOT need to submit a petition. Should an employer not file a Wage Tax Refund Petition on behalf of employees, an online option to file a petition will be available in the coming weeks. The City of Philadelphia will provide different forms depending on the reason for the petition.

The first form is for non-resident employees who were ordered to work from home during the pandemic. It will be a streamlined petition, and will only be available to workers who were required to work from home by their employer. Like paper filing, a complete petition must include:

  • A letter from the employee’s employer for the dates they were required to work outside Philadelphia.
  • A full copy of the employee’s W-2, which includes taxes paid to Philadelphia.

The second online form is for income-based petitions. It can be signed by the employee or a preparer. The petition must include:

  • A full copy of the individual’s W-2 for each employer (if they have more than one).
  • A copy of the PA SP 40 form the individual filed with the Commonwealth of Pennsylvania.

The City of Philadelphia has announced it will simplify the 2020 refund form for income-based petitioners who want to file a paper form.

Additionally, the City plans to have the online forms, as well as the simplified paper version, available for download to taxpayers the first week of February.

Please note that the new forms described above are NOT for employees who would like to request a Wage Tax refund for travel, stock options, and/or business expenses. If this is the case, the employee must continue to use paper forms.

In addition to the new options to pursue a Wage Tax Refund, the City of Philadelphia has also announced it will accept digital employer signatures and has created a uniform travel worksheet to help streamline the process.

The new refund option for 2020 is not mandatory but merely an accommodation to employees/employers who are eligible for the refund and as a means of reducing the number of refund applications to process as a result of the COVID-19 pandemic. Employers that pursue a Wage Tax Refund on behalf of qualifying employees could incur administrative burdens as part of the refund process. Employers should carefully weigh their options and consider factors such as the number of employees eligible for a refund as well as the size of the refund requested. Recently, the City has been performing a desk audit of most refund claims filed by businesses and it is possible that employer-requested refunds could face the same scrutiny.

If you have any questions about these required notifications, please contact your Kreischer Miller relationship professional or any member of Kreischer Miller’s State and Local Tax Strategies practice.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.