Philadelphia BIRT After the $100,000 Exemption Ended: Who Files, How the Two Parts Are Calculated, the NPT Credit and Your Second-Year Estimates

2026-10-11 · RKube Services

Philadelphia BIRT after the $100,000 exemption ended: who files, how the receipts and net income parts work, the NPT credit and second-year estimates.

For almost a decade, Philadelphia's Business Income and Receipts Tax (BIRT) skipped most very small businesses. The first $100,000 of Philadelphia receipts was exempt, so a freelancer, a food truck or a landlord with one rental often owed nothing. That ended with tax year 2025. After a legal challenge, the city says the $100,000 statutory deduction had to end, and the first returns without it were due April 15, 2026.

If you filed your first BIRT return this spring, your next one is due Thursday, April 15, 2027, and it comes with a decision about estimated tax you didn't face the first time. This guide covers who files, how the tax is calculated, how it interacts with the Net Profits Tax, a worked example for a Philadelphia freelancer, and the estimate schedule for second-year filers.

Sources are the city's BIRT page, its estimated payments explainer and its June 2025 budget and tax rate announcement, all checked October 2026.

Who has to file a Philadelphia, PA BIRT return

The city's rule is broad. Every individual, partnership, association, LLC and corporation doing business or another for-profit activity in Philadelphia files a BIRT return. That includes:

• sole proprietors and freelancers working in the city,
• commercial and residential landlords, even with a single rental unit,
• estates, trusts and nonprofits with for-profit activity in Philadelphia, and
• anyone holding a Commercial Activity License (CAL), even if the business was inactive. In that case you still file and tell the city no business occurred.

You file whether or not you made a profit. If you don't, the city sends a non-filer notice and says it could add court costs later.

How BIRT is calculated

BIRT has two parts, and most businesses pay both.

A mill is a tenth of a cent, so 1.410 mills is $1.41 per $1,000 of receipts.

The city's announcement says both rates keep falling. The net income rate dropped from 5.81% to 5.71% for tax year 2025, and the gross receipts rate went from 1.415 to 1.410 mills. The gross receipts portion is scheduled to fall each year until it's eliminated. Use the rates printed on the tax year 2026 return when you file in 2027; they're expected to be a little lower than the 2025 figures above.

Two other rules matter for small businesses:

• Losses carry forward. Net operating losses from tax years 2022 and later can be carried forward up to 20 years. The city recommends filing a complete return in loss years so you have a record.
• Electronic payment at $5,000. If you owe $5,000 or more in BIRT, you must pay electronically, through the Philadelphia Tax Center.

The Net Profits Tax and the 60% credit

The Net Profits Tax (NPT) is a separate city tax on the net profits of unincorporated businesses, like sole proprietorships and partnerships. For 2025, the NPT rate is 3.74% for Philadelphia residents and 3.43% for non-residents, according to the city's June 2025 announcement.

The two taxes overlap, so the city gives a credit. You can take a credit against your NPT equal to 60% of the net income portion of BIRT you paid. The city's flyer on the exemption change makes this point directly: if your BIRT goes up, your NPT will likely go down, because the credit grows with it.

Corporations, including S corporations, don't pay NPT. They pay BIRT only.

Worked example: a Philadelphia freelance designer

A designer living in Fishtown runs a sole proprietorship. In 2025, all of the work was done in Philadelphia. Philadelphia gross receipts were $85,000, and net income was $52,000.

Under the old rules, receipts under $100,000 meant no BIRT, so this designer would have paid only the $1,944.80 of NPT. The change adds roughly $1,300 of city tax for the year. That's the same pattern many small Philadelphia filers saw on their first return.

Now a Center City consulting firm set up as an S corporation, with $420,000 of Philadelphia receipts and $60,000 of net income after paying the owner's salary. Its BIRT is $592.20 on receipts plus $3,426.00 on net income, or $4,018.20. It owes no NPT, and the owner's salary is subject to the city wage tax through payroll instead.

These examples are simplified. They assume all receipts and income belong to Philadelphia and skip apportionment and the details of the BIRT net income methods.

The estimate schedule for second-year filers

Philadelphia normally requires you to pay next year's BIRT as an estimate when you file this year's return, equal to 100% of the tax on the return you're filing. For new businesses, the city has softened that since 2018, and in 2025 it extended the same treatment to existing businesses filing BIRT for the first time in 2026 because the exemption ended.

Here's how it works for a business whose first BIRT return covered tax year 2025:

The quarterly option is available for the second filing only. From the third year on, the full estimate is due with the return in April. If a due date falls on a weekend or holiday, it moves to the next business day, which applies to January 15, 2028, a Saturday.

Practically, April 2027 is the expensive month. Our designer would owe the 2026 BIRT, around $3,000 depending on income and the 2026 rates, and either a matching 2027 estimate or the first of four installments of it. If you're a second-year filer, start setting money aside now.

Extensions

The city automatically gives you 60 extra days to file the BIRT return, with no form required. After that, if the IRS has extended your federal return, Philadelphia matches it, up to the end of the federal extension. The extension covers filing only. Tax and the estimate are still due on April 15, and you make the payment with an extension payment voucher, online or on paper.

A checklist for Philadelphia (PA) small businesses

1. Confirm you need to file. Any for-profit activity in the city, including a single rental or an inactive CAL, means a BIRT return.
2. Keep Philadelphia receipts separate from sales outside the city in your books, so apportionment is easy.
3. Calculate both BIRT parts, then the NPT and the 60% credit if you're unincorporated.
4. Plan the April 15, 2027 payment as the 2026 tax plus the 2027 estimate, or the first quarterly installment if you're a second-year filer.
5. Pay electronically if your BIRT is $5,000 or more.
6. File a full return in a loss year to preserve the 20-year carryforward.

Common questions about Philadelphia (PA) BIRT

I made $30,000 from a side business in Philly. Do I file? Yes. Since tax year 2025, there's no $100,000 exemption, so you file and pay BIRT on your receipts and net income.

I own one rental property in the city. Does BIRT apply? Yes. The city lists residential rental activity as a BIRT filing activity.

Does the 60% credit apply to my S corporation? No. The credit is against the Net Profits Tax, which S corporations don't pay.

What is the Use and Occupancy Tax change? Separately, the School District's $2,000 annual Use and Occupancy Tax exemption ended in January 2026. That mainly affects businesses that occupy commercial space and their landlords.

Is free help available? The city points small businesses to free tax preparation through phila.gov/businesstaxprep, and runs grant and education programs tied to the exemption change.

This guide is general information based on City of Philadelphia guidance as of October 2026. Check the rates on the current return when you file.

Get your Philadelphia taxes on a plan

RKube Services handles bookkeeping and tax prep for small businesses and self-employed people across the US and Canada, including freelancers, landlords and S corporations in Philadelphia and the rest of Pennsylvania. We keep Philadelphia receipts separate in your books and plan the BIRT, NPT and estimate payments before April. Start with a free scoping call and a 30-day trial: call (984) 234-7030 or reach us through rkubeservices.com.