Pennsylvania Local Tax Implications of Remote Work

Pennsylvania Local Tax Implications of Remote Work

by Matthew Melinson, CPA, Narj Bhogal, CPA, Patrick Skeehan, JD, and Thomas Boyle, JD | Jun 21, 2022

pa-cpa-journal-pennsylvania-local-tax-implications-of-remote-workRemote work arrangements are becoming increasingly commonplace. What began as a COVID-19 necessity has come to be seen as an employee benefit. However, widespread remote work could expose businesses to additional tax risks and filing obligations. 

There are myriad state and local tax issues to consider, and Pennsylvania’s local taxes can be particularly challenging. The local earned income tax (EIT) and business privilege/mercantile tax (BPT) imposed throughout Pennsylvania, as well as Philadelphia’s city wage tax and business income and receipts tax (BIRT), tend to cause the most complications. This article examines the most impactful Pennsylvania local tax issues associated with remote work.

Expiration of Temporary Guidance 

In 2020, the Pennsylvania Department of Revenue issued temporary guidance that waived nexus for taxpayers with employees working remotely. An employer did not have nexus for Pennsylvania corporate net income tax or sales and use tax purposes solely based on the presence of remote employees.1 However, this guidance expired on June 30, 2021. 

At the local level, less-definitive guidance had been issued. For local EIT, the Pennsylvania Department of Community and Economic Development issued informal guidance specifying that it was reasonable for local taxing jurisdictions to follow the state’s temporary teleworking guidance, but it did not mention the local BPT or other local taxes.2 The EIT guidance expired on June 30, 2021. 

For Philadelphia’s BIRT, the Philadelphia Department of Revenue waived its physical presence nexus threshold for teleworking employees.3The city allowed employers to source receipts and apportion their income to Philadelphia as if the employee was not working remotely. The nexus guidance expired on June 30, 2021, and the apportionment guidance expired June 10, 2021. 

EIT and City Wage Tax

Nearly 3,000 local jurisdictions across Pennsylvania levy a local EIT,4 which is imposed on the income of residents and nonresidents living or working within a locality. Taxpayers are responsible for the higher of their resident location tax rate or their employment location rate. Under Pennsylvania’s Local Tax Enabling Act (LTEA), “earned income” is defined under Pennsylvania’s personal income tax (PIT) statute and regulations.5The regulations provide that work performed outside the state for a Pennsylvania-based employee is subject to PIT unless the employee is obligated to work out-of-state. This is referred to as the “convenience of the employer” standard. Since the LTEA adopts the definition of earned income from the PIT provisions, it is conceivable that Pennsylvania local EIT rules would likewise follow the convenience of the employer standard, not only on an interstate basis but perhaps within Pennsylvania.

For city wage tax purposes, Philadelphia issued guidance clarifying the interpretation of its convenience of the employer standard.6 Nonresident employees required by their employer to work from home are not subject to city wage tax, but employees given the option to work remotely at their own convenience are subject to the tax. 

Local EIT taxing jurisdictions have not historically or aggressively enforced the convenience of the employer policy. However, it is possible that local jurisdictions may increase their focus on this standard given the increase of remote work over the past two years.


Approximately 270 jurisdictions across Pennsylvania currently impose a BPT.7 The BPT is a gross receipts tax imposed at the entity level for the “privilege” of doing business in a jurisdiction. Taxability is based on having a “base of operations” in a jurisdiction. A “base of operations” is defined under Act 42 of 2014 as the “physical … place of business” where the business is managed or controlled.” Act 42 also added a bright-line de minimis nexus standard (operating for all or part of 15 days during a calendar year), but the law prevents double taxation by allowing taxpayers to exclude receipts taxed in other BPT jurisdictions.8

BPT ordinances and regulations, however, lack uniformity across jurisdictions, thus causing additional compliance challenges. Certain jurisdictions include “home office” exceptions, under which a personal residence used to conduct business may not be considered a base of operations. For example, Radnor Township has a “home office” exception, where an employee working remotely in the jurisdiction may not create a base of operations, but still may create nexus under Act 42.9 Lower Merion Township has an unofficial policy where remote employees create nexus if a two-part test is met: the employee must be working remotely at the employer’s convenience (i.e., there is no office available from a reasonable commutable distance), and the employee must be directly involved in the generation of receipts for the business. However, the presence of an employee working remotely in a jurisdiction for at least 15 days may trigger a filing obligation in both of the above examples. 

Determining nexus for local BPT and Philadelphia BIRT purposes is the threshold question. The presence of remote workers in a local jurisdiction where the employer does not have an active trade or business, or permanent physical presence, makes a nexus determination more complex. Once nexus is established, taxpayers must then properly determine the taxable receipts reportable to the jurisdiction. To determine taxable sales, some localities use a traditional three-factor (property, payroll, and sales) apportionment concept. Many do not provide clear sourcing guidance.

A combination of technical analysis and pragmatic business application may be warranted in navigating local BPTs. If there are only a handful of employees working remotely in a local Pennsylvania jurisdiction and the provision of sales or services in that jurisdiction are not substantial, it is likely the tax liability would be minimal. However, the costs of preparing and filing the local returns can be meaningful.


Employers must carefully evaluate how remote workers impact their local tax filing obligations. Adding to the challenge is a lack of uniformity across jurisdictions based on varying ordinances, regulations, informal policies, and interpretations.

With so many Pennsylvania localities imposing an EIT and/or a BPT, businesses should first take an inventory of where their employees are working. Taxpayers may want to prioritize jurisdictions where they have a larger number of remote workers or highly compensated employees and implement regular reviews to account for employee turnover and work location changes. Companies should also assess the benefits of voluntarily filing prior-period returns, especially if nexus related to remote workers existed in past years. Both the BPT and EIT should be considered holistically because registration or withholding for one tax type likely may lead to an inquiry regarding another tax. 

Pennsylvania’s local tax structure is arguably the most complex in the country. The issues stemming from the increase of remote workers over the past two years further highlight these challenges, leading to additional tax-filing requirements for many companies. Remote workers, however, may also result in opportunities for taxpayers to shift their tax burden from higher tax-rate localities to those with lower rates or to jurisdictions that do not impose such taxes. Nexus, usually considered negative by taxpayers, can sometimes be beneficial. 

The tax impacts of remote work will likely be an evolving area for years to come. Businesses will need to consistently analyze and update their tax positions as changes within their workforce and modifications to governmental tax policies occur.   

1 Telework During the COVID-19 Pandemic, Pennsylvania Department of Revenue. 
2 Cheri H. Freeh, CPA, CGMA, “DCED (Finally) Issues Needed Local Earned Income Tax Guidance,” CPA Now (Dec. 14, 2020).  
3 Business Income & Receipts Tax (BIRT), Net Profits Tax (NPT) Nexus and Apportionment Policies Due to the COVID-19 Pandemic, Philadelphia Department of Revenue (Dec. 7, 2020). 
4 Jared Walczak, Local Taxes in 2019, 
5 Local Tax Enabling Act, 53 P.S. Section 6924.101 et seq.; 53 Pa. Stat. Ann. Section 6924.501.
6 Philadelphia Wage Tax Q&A applicable to COVID-19 policies, Philadelphia Department of Revenue (May 1, 2021). 
7 2019 Annual Financial Report, Pennsylvania Department of Community & Economic Development.
8 53 Pa. Stat. Ann. Section 6924.301.1(a.1)(1)(i)-(ii).
9 Radnor Township Business Privilege and Mercantile Tax Regulations Sec. 201.

Matthew Melinson, CPA, is a partner with Grant Thornton who specializes in state and local tax and is a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at

Narj Bhogal, CPA, Patrick Skeehan, JD, and Thomas Boyle, JD, also work at Grant Thornton and specialize in state and local tax. Bhogal is a director and can be reached at Skeehan is a senior manager in the Washington National Tax Office and can be reached at Boyle is a senior associate and can be reached at

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