A woman in her 60s whose only income is Social Security disability and who lives below the federal poverty line requested help from Philadelphia Legal Assistance because she had recently received notices from the city of Philadelphia’s Department of Revenue. The city is trying to collect $200 of city income tax from 1990—yes, 1990!—on top of which she is being charged nearly $1,000 in penalties and close to $600 in interest. More about the city’s tax penalties and interest later.
Just over a year ago, Philadelphia’s city council expanded a little-known provision of Title 19 (finances, taxes and collection) of the city code, which allows for “Refunds and Forgiveness for Poverty Income.” Becoming law on March 12, 2020, Philadelphia Code Section 19-1508 effectively decreased the city’s wage and net profit taxes on low income city residents from almost 4% to 1.5%. (Although the law says that the tax rate is reduced to 0%, for at least the next few years the city’s 1.5% Pennsylvania Intergovernmental Cooperation Authority Tax on wages and net profits remains in place. Philadelphia Code Section 19-2803.) Prior to this expansion, there was a 0.5% reduction in these taxes for low income city residents. A comparable reduction existed and was also expanded for low income nonresidents who by virtue of working in the city are also subject to the city’s earnings tax.