Tax Planning for Physicians in Philadelphia (2026)
Philadelphia's wage tax is one of the highest city income taxes in the country, and for many physicians it costs more than the Pennsylvania state income tax. Self-employed physicians pay the same rates through the Net Profits Tax.
2026 at a glance
| Resident wage tax (from July 1, 2026) | 3.735% |
|---|---|
| Nonresident wage tax (from July 1, 2026) | 3.425% |
| Self-employed (Net Profits Tax) | Same resident and nonresident rates on net profits |
| Pennsylvania state rate | 3.07% flat |
| Pennsylvania PTET | Not enacted (proposed) |
How the wage tax works
Philadelphia residents pay the wage tax on all compensation, wherever they work. Nonresidents pay the lower rate only on compensation for work performed inside the city. Physicians who split time between a Philadelphia hospital and suburban clinics can usually exclude days worked outside the city, but only with records.
Planning priorities
- Track work location. Nonresident physicians should document days worked outside Philadelphia to claim a refund of over-withheld wage tax.
- Remember Pennsylvania's 401(k) rule. Pennsylvania and Philadelphia do not exclude employee 401(k) deferrals from taxable compensation, so a pre-tax deferral saves federal tax but not state or city tax.
- Consider where you live. Living outside the city lowers the rate and limits the tax to in-city work, though it does not remove it.
- No SALT workaround yet. Pennsylvania has not enacted a pass-through entity tax, so Philadelphia practice owners cannot yet move state tax above the federal SALT cap.
See the full Pennsylvania physician tax guide.
More physician tax guides
- Other Pennsylvania cities: Pittsburgh, Allentown, Hershey, Harrisburg.
- State rules: Pennsylvania physician tax guide and all 50 state guides.
- By specialty: Emergency Physicians, Plastic Surgeons, Surgeons, Cardiologists and every specialty.
- Core strategy: tax planning for physicians, tax planning for medical practice owners, advanced strategies for high-income physicians and S corporation tax planning for physicians, plus the physician tax glossary.
Frequently asked questions
Do nonresidents pay Philadelphia wage tax?
Yes, at the nonresident rate (3.425% from July 1, 2026), but only on pay for work performed inside Philadelphia.
Does a 401(k) deferral reduce Philadelphia wage tax?
No. Employee 401(k) deferrals are still subject to Philadelphia wage tax and Pennsylvania income tax.
Get a tax plan built for your situation
GenWealth 360 builds proactive, tax-first plans for physicians, dentists and medical practice owners in all 50 states. Start with a conversation about your income, entity and goals.
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Sources
This article is for general educational purposes and is not tax, legal or investment advice. Tax law changes often and its application depends on your facts. Figures reflect 2026 rules as published by the sources listed above. Consult a qualified professional before acting. See our editorial policy.