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Philadelphia tax credits are like a get out of jail free card. They equate to getting a pass on some of the tax you owe. Unlike tax deductions which are subtracted from taxable income, tax credits are subtracted from tax owed making them much more valuable. A tax credit reduces your tax liability, dollar for dollar, by the value of the credit whereas the value of a tax deduction gets watered down (or wiped out completely!) depending on your income, other deductions, and tax rate.
Given the high rate of taxation in Philadelphia, it is wise to educate yourself about tax credits, determine if you’re eligible, and then apply for them so you can reduce the amount you owe as much as possible.
This post explains three 2019 Philadelphia tax credits and their eligibility requirements. There are other tax credits mentioned at the end of the post and links provided to additional information so you can check them out too. We also have a blog post about the current tax year’s (2020) Philadelphia tax credits and eligibility requirements in case you’re interested.
Job Creation Tax Credit (PHJCTC)
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What is it?
The Philadelphia Job Creation Tax Credit rewards businesses that increase the number of jobs available in the City.
PHJCTC credits can be used to offset your Philadelphia Business Privilege Tax.
Who is eligible?
To be eligible, a business must create 25 new jobs or increase its number of employees by at least 20% within 5 years of a designated start date.
How much is the credit?
The credit is for 2% of annual wages paid for each new job or $5,000 per new job created, whichever is higher. These figures are subject to the maximum amount specified in the commitment agreement.
How do I claim it?
If you’re interested, you must submit an application to the Department of Revenue. Once accepted, a commitment agreement is drawn up and signed. The commitment agreement designates the job creation start date and number of jobs to be created.
A business has up to five years to create an agreed-upon number of jobs. Once created, you can ask the Department of Revenue to certify (via payroll records review) the number of jobs created and wages paid. If Revenue is satisfied, it will issue a tax credit.
You must fulfill the terms of the agreement and continue to operate as a business in the City for the full five years in order to remain eligible for the tax credit. If you do not, you must request a waiver or repay the credit.
Where can I get more information?
You can find more information about the Philadelphia job creation tax credit program on the city’s website.
Keystone Opportunity Zone Tax Credit
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In an effort to spur investment and economic development in areas where little or no development has taken place, the Commonwealth of Pennsylvania created The Keystone Opportunity Zone (KOZ) Program in 1999. Keystone Opportunity Zones are located throughout the state. They are defined, parcel-specific areas where property owners, residents, and/or businesses can benefit from reduced or no taxes. Many of the properties are commercial and/or industrial and contain decaying and rusting factories, mills, and office buildings. Many are left-overs from the abandoned rust belt.
The city of Philadelphia has worked with local communities to designate KOZ properties. The city will give property owners and/or businesses a tax credit if you own or lease any of these properties and then invest and actively conduct a trade or business on them.
Five city taxes can be reduced using Keystone Opportunity Zone tax credits:
- Business Income and Receipts Tax (BIRT);
- Net Profits Tax (NPT);
- Use and Occupancy Tax (U&O);
- Real Estate Tax; and
- Sales, Use, & Hotel Occupancy Tax.
Who is eligible?
To be eligible for KOZ benefits, a business or company must own or lease a property in one of the designated zones and actively conduct trade, business, or a profession in that same zone.
How much is the credit?
The amount of credit varies according to tax owed. In most instances, the tax is eliminated.
How do I claim it?
You must first be certified by the Pennsylvania Department of Community and Economic Development (DCED), and you must renew that certification every year in which you want to apply for the credit.
Where can I get more information?
The city of Philadelphia has a page on its website that contains additional information about the Keystone Opportunity Zone Tax credit and links to other sources as well. It’s very confusing – provides conflicting and outdated information and leaves many questions unanswered. If you have specific questions about your eligibility or KOZ benefits, I recommend you check out the state’s page on the same topic, or speak to an accountant.
Here is an online application you can use to apply for the credit.
Sustainable Business Tax Credit
What is it?
The Sustainable Business Tax Credit encourages sustainable and “clean” business practices in the city of Philadelphia. Eligible companies are awarded a credit that can be used to reduce the amount of BIRT (Business Income & Receipts Tax) owed.
Who is eligible?
Companies who are considered “sustainable”. The city defines that as “a business that gives substantial consideration to their workers, the community, and environmental interests in its practices, products, and services.” Companies must also be up-to-date in terms of its city tax obligations.
How much is the credit?
The credit can be for as much as $4,000. That’s subject to change and you should always check with the city. You can get the exact number by going thru the process and filling out a sustainable business tax credit form and application (below).
How do I claim it?
The Office of Sustainability reviews applications and determines whether a business meets all eligibility criteria.
You must reapply for the credit every year.
Where can I get more information?
Sustainable business tax credit forms and applications can be found on the city’s website.
Other Credits You May Be Eligible For
There are other Philadelphia tax credits that may be helpful and available to individuals and businesses including the Earned Income Tax Credit, Active Duty Tax Credit, Distressed Business Tax Credit, Jump Start Philly Credit, and Community Development Corporation Tax Credit.
A lot of people find they don’t have the time or would prefer to have professional help when it comes to filing their 2019 Philadelphia taxes. If that describes you, feel free to give us a call (215-342-4200) or fill out our Contact Us form. Often the cost of hiring an accountant is offset by the amount of money you save from increased deductions and tax credits or from avoiding filing delays and/or errors.