Sterling Act = Lost EIT Tax Dollars for #NewtownPA!

The Sterling Act was adopted by the Pennsylvania Legislature in 1932, and requires that all non-residents working in the City of Philadelphia pay an earned income tax (aka “Wage Tax”) to the City for the privilege of working there. The current tax rate is 3.448% of earned income. The Act was intended to be in place for a one-year period, and was designed to help the City with the cost of municipal services during the Great Depression.

The Sterling Act may have made sense in 1932 when the surrounding Counties consisted mainly of farmland with few municipal services; however, much has changed in the suburbs since the 1930’s. 

Development of the surrounding Counties with many new homes and businesses, necessitated an expansion of local municipal services to support and protect the growing population. This included a need for full-time police departments, additional funding for volunteer fire companies and emergency medical providers, parks and recreation services, more public works employees to maintain new infrastructure, public utility systems, libraries, and associated administrative support personnel. It also required public schools to build new facilities for a growing number of students.

Despite the need for additional revenue to support expanding local government services, the Sterling Act allowed the City of Philadelphia to continue taxing the wages of non-residents without the requirement to remit any income taxes it collected to a non-resident’s home municipality, even though that home municipality may have enacted its own earned income tax, which is limited by State law to one (1%) of earned income.

The Sterling Act only applies to the City of Philadelphia and nowhere else in the Commonwealth of Pennsylvania.  It is an outdated law that creates an inequity in the local tax structure by taxing residents living in suburban communities and working in the City, and not requiring the City to remit any portion of the City Wage Tax paid by non-residents to their home communities.  This places a higher tax burden on those suburban residents not working in the City and deprives local communities of tax revenue that could be used to provide essential government services. 

The Sterling Act must be amended to require the City of Philadelphia to remit up to one percent (1%) of the earned income paid by non-residents to the City, and collected under the requirements of the Philadelphia Wage Tax, to the non-resident’s home community if a local earned income tax was enacted.

Great news! Senator Frank Farry’s SB 671, legislation to amend the Sterling Act, passed out of the Appropriations Committee yesterday (May 2, 2023) and passed the whole PA Senate today, 28-21. Thanks to everyone who phoned or emailed Senator Steve Santarsiero and Senator Jarrett Coleman.

Now on to the PA House! Representative Brian Munroe, serving Bucks County District 144, is asking other State Reps to consider joining him "in sponsoring this important piece of legislation to ensure that all Pennsylvanians are reaping the benefits of their hard work in the communities in which they live.”

Please reach out to your State House Reps to heed Representative Brian Munroe’s call. 

Posted on 02 May 2023, 10:10 - Category: Taxes