City officials introduced a policy this week intended to ease the burden on entrepreneurs who now have to pay business taxes, after Mayor Cherelle Parker’s administration scrapped a popular exemption.
For tax bills due in April, every enterprise in Philadelphia must pay the Business Income & Receipts Tax, or BIRT. A relief program rolled out 10 years ago exempted a business’s first $100,000 in revenue, effectively eliminating the requirement to pay the tax for an estimated 75,000 businesses.
Parker’s office moved to eliminate that benefit earlier this year. The decision was based on an ongoing legal challenge that the city’s Law Department felt could be successful and potentially invalidate all of BRT, which accounts for a significant chunk of the municipal budget.
The Philadelphia Department of Revenue announced Tuesday that previously exempt companies will be treated as “new businesses” under BIRT regulations this April, provided that they have not paid the tax in the past three years.
Typically, business owners are responsible for paying any tax accrued during the prior calendar year and the estimated tax for the current year. New businesses need only to cover the prior year’s bill, thanks to a 2018 measure adopted by City Council.
A new business completing their second BIRT return can also spread the estimated cost across quarterly payments. By the third year, the business must pay both bills by April 15.
“With this policy clarification, we’re easing the transition for businesses that have been operating in Philadelphia but previously did not have a filing or payment requirement,” Revenue Commissioner Kathleen McColgan said in a statement. “This support will make a meaningful difference, especially for small businesses that will have a tax bill for Tax Year 2025.”
To help small businesses with the change, along with other tax obligations, the city’s Commerce Department is launching a program to provide free local, state and federal tax preparation services.
Eligible businesses must be based in Philadelphia and have earned no more than $250,000 in 2024. The program has not yet been launched, though individuals can sign up at the department’s website to be notified of developments.
Parker and Council, as part of the city budget process, allocated $38.5 million in June to aid businesses impacted by the end of the BIRT exemption.
In addition, the budget codified a 13-year-old plan to eliminate the tax’s levy on revenue and cut the net income portion in half.
