Unraveling the Complexity: NPT and BIRT Tax in Philadelphia 

If you’re a business owner in Philadelphia, understanding the nuances of local taxes is crucial for financial success. In this guide, we shed light on two significant taxes – the Net Profits Tax (NPT) and the Business Income and Receipts Tax (BIRT) – to help you make informed decisions and optimize your tax strategy. 

Net Profits Tax (NPT)

What is NPT? 

The Net Profits Tax is simply applied to unincorporated businesses like sole proprietorships and partnerships or LLCs earning income in Philadelphia. On the other side, the corporations, covering S corporations, are instead subject to tax implication under the Business Income and Receipts Tax (BIRT) which will be explained in the following section.

Key Considerations: 

• Taxable Income Calculation: NPT is levied on the net profits derived from business activities within the city. In 2023, the tax rates are 3.75% for residents and 3.44% for non-residents. 
• Filing Requirements: Taxpayers who have businesses in Philadelphia must file a return even if a loss is incurred. If no return is filed, non-filer penalties are imposed. 
• Credit: The NPT does not replace the net income segment of the Business Income & Receipts Tax (BIRT). However, you may qualify for a credit on the NPT, determined by the tax amount owed through your BIRT.
• Exemptions and Deductions: Certain exemptions and deductions are available (Pennsylvania’s Tax Forgiveness Program) that can significantly impact your NPT liability. We’ll help you identify and leverage these opportunities to minimize your tax burden. 

Business Income and Receipts Tax (BIRT) 

What is BIRT? 

The Business Income and Receipts Tax is a tax on gross receipts and net income derived from business activities. BIRT applies to every entity, including sole proprietors, engaged in a business for profit in the City of Philadelphia. 

Key Considerations: 

• Gross Receipts vs. Net Income: BIRT incorporates both gross receipts and net income components.  
• Tax rates: For tax year 2023, the tax rates are 0.1415% on gross receipts and 5.81% on taxable net income. 
• No Tax Liability: Businesses with $100,000 in Philadelphia taxable gross receipts or less are not required to file the Business Income & Receipts Tax (BIRT) return. 
• Deadline: The BIRT must be filed and paid by April 15 of each year. Eligible taxpayers may apply for an extension which grants an additional 60 days to file, but not pay the taxes. 
• Credits and Incentives: Various credits may be applied against the BIRT tax liabilities, such as Community Development Credit, Green Roof Tax Credit, Sustainable Business Tax Credit, etc. Our team can help you determine the eligibility of each credit. 
• Compliance and Reporting: BIRT compliance involves intricate reporting requirements. We ensure that your business meets all regulatory obligations, minimizing the risk of penalties. 

Need help?

Whether you’re a startup, a small business, or an established corporation, we are dedicated to optimizing your tax strategy, ensuring compliance, and mitigating risks. Feel free to contact us below if you need help with BIRT and NPT.