Philly business owners worry about the impact of new city taxes on small operations after tax break is eliminated

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Many Philadelphia business owners are facing new city taxes this year, and some say the additional costs are hitting sole proprietors and single-person operations especially hard.

Smaller enterprises may be paying, for the first time, the city’s business income and receipts tax, also known as BIRT, after an exemption was eliminated last year following a lawsuit.

Under the exemption, businesses did not have to pay taxes on their first $100,000 of revenue.

Now, business owners are trying to prepare for a heavier tax burden. Ruth Conviser, who runs a therapy private practice called Growth Solutions Counseling, braced herself for some sticker shock.

“I ran numbers with my tax person and, you know, a scary number came back,” she said.

That scary number was nearly $5,000 in new BIRT payments, which does not count other local, state and federal income taxes she’ll owe as well.

She said for her, this is a lot of money, but doable in terms of her finances.

“We’re not going to miss a mortgage payment or a meal, but we might miss a vacation and certainly less retirement contributions,” she said, adding that she’s worried about other practitioners. “This is going to be devastating for somebody. Somebody is going to miss meals or mortgage payments because of this money.”

City leaders are encouraging people to seek help from a new program that matches vetted accounting firms with small businesses as they navigate the changing tax codes this year. The Philadelphia Free Business Tax Preparation Program will also help businesses file their state and federal taxes.

“We understand that it’s a hard adjustment to make, and that’s why we do want to make sure we’re here to help businesses however we can with that guidance,” said Karen Fegely, acting director of the Philadelphia Department of Commerce.

What is BIRT and who has to pay it?

All for-profit commercial, limited liability, corporations, partnerships and individual owners doing business in Philadelphia must pay BIRT, which is a 5.71% tax on net income and a 1.410 mill rate, or $1.40 per $1,000, on gross receipts.

Philadelphia collected more than $700 million in revenue from BIRT in fiscal year 2025, according to city data. The money goes into the city’s General Fund, which supports city departments and services.

Previously, all businesses were exempted from paying BIRT on the first $100,000 of gross revenue. All companies and operations could benefit from the tax break, but Fegely said it was especially helpful for small businesses that were just getting started or had smaller annual revenues.

However, ZOLL Medical Corporation, a company based in Massachusetts that makes medical devices and software, sued Philadelphia in 2024, claiming that the tax break violated Pennsylvania’s Uniformity Clause, which requires that taxes be applied at a flat rate among all “subjects” in the same class.

Philadelphia City Council and Mayor Cherelle Parker eliminated the BIRT exemption in 2025 in reaction to the legal challenge.

“It wasn’t anyone’s desire,” Fegely said, “but it was a very well-thought-through situation and decision, a tough and difficult decision that was made with all of the information around.”

Impact on small businesses

The end of the exemption and the associated additional tax burden could spell problems for Philadelphia’s business community, Conviser said.

“It did feel like an enormous rug pull,” she said. “Like, what if you’ve got this tiny small business and you’re actually doing everything legally and then you get penalized for it? That’s not how I want things to be.”

Still, her business does well and she has a husband with a stable job, which she said is enough to support them and their two children. But Conviser knows other therapists and business owners are in more vulnerable financial positions.

“The amount that goes out in taxes and then overhead, it’s harder to make a living,” she said. “It’s not enough to just be good at your job. It’s just hard.”

Professional organizations like the Greater Philadelphia Hispanic Chamber of Commerce have been trying to raise awareness about the tax changes since the fall with workshops and webinars.

Year over year, businesses surveyed by the Diverse Chamber Coalition of Philadelphia, a collective of different chambers, called BIRT “the most burdensome tax they are subjected to,” said Jennifer Rodríguez, president and CEO of the Hispanic Chamber.

“Anecdotally, what we have seen from business owners is frustration,” she said. “Because the exemption elimination is effective now, they will have to pay full BIRT as of this year. They have not planned ahead for it.”

There are efforts in city council to provide some relief. Councilmember Michael Driscoll, who represents District 6, introduced a bill in November that would establish new BIRT exemptions for sole proprietors and single-member limited liability companies, or LLCs.

The proposal has been reviewed by the city’s Law Department “and is designed to fully comply with state law,” Driscoll told WHYY in an email.

“When the long-standing BIRT exemption ended, thousands of these businesses received a tax bill for the first time. For a small business trying to survive on tight margins, this tax can be the difference between staying open or closing its doors,” he said. “My bill offers targeted relief for sole proprietors and single-member LLCs to help them stay open, reinvest, and grow.”

If passed, the legislation would take effect on July 1 and apply to next year’s tax season.

Support and resources for Philly businesses

City leaders are encouraging businesses to apply for the Philadelphia Free Business Tax Preparation Program. Fegely said it can help small businesses filing BIRT for the first time and their other local, state and federal taxes.

The program matches vetted local accounting firms with businesses making less than $250,000 a year in revenue.

“We want to make sure we’re helping the people who are going to get hit hardest,” said Liam Kelly Fleming, senior director of Small Business Assistance Programs at the Department of Commerce.

The accounting firms all have physical locations in Philadelphia and are up to date on local tax codes.

“They are small business owners themselves, so they understand the small business owners’ sort of plight, or challenges and rewards,” Fleming said. “A lot of them really have a passion for education.”

The program has received 678 applications as of Feb. 2, and 535 businesses have so far been approved and matched to accountants.

Businesses that did not have to pay BIRT in the last three years will be treated as new businesses this filing season, which is a significant distinction, Fegely said.

BIRT taxes businesses on their projected revenues and incomes for the upcoming year. Businesses new to BIRT will only be taxed on their 2025 earnings for filings due this April. Next year, the businesses will file taxes based on their 2026 earnings and can pay their BIRT liabilities on their projected 2027 earnings in quarterly installments throughout that year.

It prevents businesses from having to pay two year’s worth of BIRT payments at once, Fegely said.

To compensate for the loss of the BIRT exemption, City Council passed $38.5 million in last year’s budget to fund the free tax preparation program and bolster existing financial support programs for Philadelphia businesses.

The additional money is being used to award more grants, loans and initiatives for local businesses of all sizes.