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Because of the COVID-19 emergency, Pennsylvania Governor Tom Wolf and Philadelphia Mayor Jim Kenney issued Executive Orders requiring that, effective March 16, 2020, nonresident office employees work remotely from their homes. Since July 3, 2020, the Philadelphia guidance has provided that nonresident office employees continue their remote work from home where feasible, referred to as the "limited green phase."

To assist employers in determining their wage tax obligations during this limited green phase, the City of Philadelphia Department of Revenue (DOR) updated its frequently asked questions (FAQs) to include various employer policy scenarios and their implications. These FAQs augment previous guidance issued by the DOR. (See EY Tax Alerts 2020-1227 and 2021-0239.)

When the wage tax applies to Philadelphia nonresident employees

The following FAQs address when the Wage Tax applies based on an employer's work-from-home policy.

From March 16, 2020 through July 3, 2020, while the stay-at-home order was in place, and until Philadelphia entered the modified green phase of reopening, an employer has a policy that no employee may work from the Philadelphia work location.

The nonresident employees were not working in Philadelphia and their wages are not subject to Wage Tax.

Notwithstanding that the city's limited green phase allowed an employer to reopen in a limited capacity, the employer kept in place a policy that no employee may work from the Philadelphia work location.

The wages of the nonresident employees who followed the employer's policy and were not working within Philadelphia are not subject to Wage Tax.

Beginning September 1, 2020, the employer's policy divides the workforce into A team and B team with alternating weeks designated as "A weeks" and "B weeks." The A team is required to report to the Philadelphia workplace during the A weeks and the B team is required to report to the Philadelphia workplace during the B weeks. When it is A team's week to be at the Philadelphia workplace, the B team is required to work remotely and when it is the B team's week to be at the Philadelphia workplace, the A team is required to work remotely.

The wages of the nonresident employees of both A and B teams are subject to Wage Tax only for the weeks they are working at the Philadelphia location.

Due to social distancing rules, an employer has a policy that only 20% of its workforce may work at the Philadelphia location on a given day, and the remaining 80% must work from home.

The wages of the nonresident employees who are required to, and do work at home, are not subject to Wage Tax except on the days they report to the Philadelphia work location.

Consistent with the city's current guidance that "remote work must continue where feasible," an employer has a policy that, generally, all employees should work from home if they are able to. Access to the office is allowed only if employees prearrange to come to the Philadelphia work location and pass a health assessment.

The wages of the nonresident employees are subject to Wage Tax only for days that they passed the health assessment and spent those days working at the Philadelphia location.

An employer has a policy that, generally, all employees must work from home except certain categories of employees, such as mail room or technical support staff. If employees must work at the Philadelphia location, they must pass a health assessment, and if approved, must work at the Philadelphia location. If the health assessment is not passed, the employee is required to work from home.

The wages of nonresident employees who are part of the category of employees required to work at the Philadelphia location are subject to Wage Tax provided they pass the health assessment. Otherwise, nonresident employees are not subject to Wage Tax to the extent they work from home.

An employer operates a retail store in Philadelphia. During portions of the COVID-19 emergency, the employer closed the store. The employer continues to pay nonresident employees during the periods of closure. The nonresident employees are not working from home during these periods. Would the compensation paid to these nonresident employees while not working be subject to the Wage Tax?

Yes. This compensation is treated like vacation, holiday, and sabbatical leave payments when the employee is not required to perform any services while away from work. Such compensation is a benefit accrued by virtue of employment, and subject to Wage Tax based on the employee's time inside and outside of Philadelphia while actively working. In this case, the nonresident employees were working entirely in Philadelphia prior to the temporary closures of the retail store.

Work from home that is considered for the convenience of the employer and exempt from Wage Tax

The following FAQs address the circumstances under which nonresident employees' wages are exempt from Wage Tax because they worked from home for the necessity of the employer and not for their own convenience.

When an employer with offices in Philadelphia documents in writing its work-from-home policy for nonresident employees' underlying medical conditions or childcare issues, would the following language suffice as proof of a work-from-home requirement directive to its employees?

a. Employees with underlying medical conditions are required to work-from-home provided they submit a doctor's note to their manager. The employer requires employees with underlying medical conditions to work from home to protect itself from liability and therefore the policy has a business purpose.

Yes

b. Employees with childcare issues may only work from home with their manager's approval.

No. The wages of the nonresident employees who have COVID-19-related childcare issues that cause them to remain at home and work remotely are subject to Wage Tax. This policy does not establish a work-from-home requirement. These employees are working from home to care for their children and this accommodation benefits the employee. Childcare issues are particular to the employee and the DOR considers working from home for childcare reasons to be for the convenience of the employee and not the necessity of the employer.

When an employer with offices in Philadelphia documents in writing its COVID-19 work-from- home policy, would the following language suffice as proof of a work-from-home requirement directive to its employees?

a. All employees are required to work from home starting March 16, 2020 and extending through the duration of the City of Philadelphia's stay-at-home order.

Yes

b. All employees are generally required to work from home starting March 16, 2020 and extending through the duration of the City of Philadelphia's stay-at-home order and may work in the office as needed to perform their duties with permission from their employer or supervisors, or on a schedule approved by their employer or supervisors, and subject to passing a health assessment.

Yes, except to the extent that employees are granted permission, pass the health assessment and work at the Philadelphia work location.

c. All employees are generally required to work from home starting March 16, 2020 and extending through the duration of the City of Philadelphia's stay-at-home order and may choose to work in the Philadelphia office as needed to perform their duties.

No. Because the nonresident employees have the option to work in the office located in Philadelphia, those who choose to work from home are subject to Wage Tax.

d. Employees are generally required to work from home but may work in the office when necessary, subject to prior approval from the employer, and other employees may work in the office subject to a limitation of no more than 20% of the normal occupancy, subject to approval of the employer.

Yes, in part. The wages of the nonresident employees who work in the Philadelphia office are subject to Wage Tax only for the time they work in the Philadelphia office.

e. Beginning July 4, 2020, employees may work in the Philadelphia office, subject to all applicable federal, state, and local laws and regulations. Employees who are uncomfortable commuting to the Philadelphia office due to the ongoing pandemic may work from home.

No. This policy provides nonresident employees with the option to work from home, if they so choose. It does not establish a work-from-home requirement. As such, their compensation is subject to Wage Tax.

Apportionment of Wage Tax for employees working partly from home and in Philadelphia

The following FAQs address the method for apportioning the percentage of compensation subject to Wage tax when the nonresident employee works partially within Philadelphia and partially from home due to the COVID-19 emergency.

In December 2019, a nonresident employee elected to defer 5% of his 2020 compensation. Prior to 2020, the employee worked in Philadelphia 100% of the time. Because of COVID-19, he was required to work remotely after March 16, 2020, and only worked in Philadelphia for 20% of the total 2020 workdays. What percentage of the 2020 deferred compensation is subject to Wage Tax?

20% of his 2020 compensation is subject to Wage Tax.

In January 2020, an employer paid bonuses to employees for services they provided in 2019. Prior to 2020, an employee worked in Philadelphia 100% of the time. Because of COVID-19, the employee was required to work remotely after March 16, 2020, and only worked in Philadelphia for 20% of the total 2020 workdays. To be paid a bonus, the employee must be employed on the date the bonuses are paid. How much of the bonus paid to this nonresident employee is subject to Wage Tax?

100% of the compensation is subject to Wage Tax because the compensation is attributable to the time the employee worked during 2019.

In December 2020, an employer pays bonuses to employees for work they performed in 2020. Prior to 2020, an employee worked in Philadelphia 100% of the time. Because of COVID-19, the employee was required to work remotely after March 16, 2020, and only worked in Philadelphia for 20% of the total 2020 workdays. To be paid a bonus, the employee must be employed on the date the bonuses are paid. How much of the bonus paid to this nonresident employee is subject to Wage Tax?

20% of the compensation is subject to Wage Tax because the compensation is attributable to the time the employee worked during 2020.

In January 2021, an employer pays bonuses to employees for serviced they provided in 2020. Prior to 2020, an employee worked in Philadelphia 100% of the time. Because of COVID-19, the employee was required to work remotely after March 16, 2020, and only worked in Philadelphia for 20% of the total 2020 workdays. To be paid a bonus, the employee must be employed on the date the bonuses are paid. How much of the bonus paid to this nonresident employee is subject to Wage Tax?

20% of the compensation is subject to Wage Tax because the compensation is attributable to the time the employee worked during 2020.

How is the Wage Tax determined for restricted stock units?

The percentage of income subject to Wage Tax is equal to the percentage of days the nonresident employee worked in the city during the year or years prior to the grant date.

What would the Wage Tax implications be if restricted stock units are issued to employees as an incentive payment for future services?

The percentage of income subject to Wage Tax is equal to the percentage of days the employee worked within Philadelphia during the period between the date of the grant and the date of vesting of the restricted stock.

Is the same percentage used to determine the portion of restricted stock subject to Wage Tax also applicable for determining whether the portion of a dividend equivalent received on a restricted stock unit would be subject to Wage Tax?

No. The dividend equivalent is taxable when received. The percentage of income subject to Wage Tax is equal to the percentage of days a nonresident employee worked within Philadelphia during the year the dividend equivalent is paid.

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