View the full press release at: https://www.upperdarby.org/news/post/6725/

11/15/2023 Update: Proposed General Fund Budget Changes based on Earned Income Tax Revenue

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Upper Darby Township Proposed Earned Income Tax FAQs

What is an Earned Income Tax (EIT)?
The local Earned Income Tax (EIT) was enacted in 1965 under Act 511, the state law that gives municipalities and school districts the legal authority to levy a tax on individual gross earned income/compensation and net profits.  The tax is based on the taxpayer’s place of residence (domicile) and NOT their place of employment.  The EIT is separate from the Pennsylvania personal income tax (your state income tax).

Why do we need an Earned Income Tax?
Upper Darby Township received a grant from the PA Department of Community and Economic Development through the Strategic Management Planning Program (STMP) which funded PFM’s 5 Year Financial Management Plan. The recommendations in the report clearly documented the need for additional revenue sources and specifically an earned income tax. Upper Darby is the only municipality of its size in Pennsylvania that does not have an EIT.

You can view PFM’s presentation and the full Five Year Financial Management Plan can be found at: https://www.upperdarby.org/departments/Finance/SpecialReports

Why do we need a new revenue option?
Upper Darby currently relies heavily on Property Taxes as its main source of revenue. PFM’s report was very clear that we need to diversify. Adding an earned income tax, which is based on income rather than the value of a property, means that a retired homeowner isn’t burdened by large property tax increases. Relying only on property taxes to keep up with increases to labor costs and contractual obligations is not affordable to all residents. Upper Darby Township deserves world class municipal services and that comes at a cost.

How would an Earned Income Tax improve the quality of life in Upper Darby Township?
The administration has proposed a revised 2024 budget based on the additional revenue from the proposed EIT. The proposal will remove the 5%+ property tax increase and the use of $2.5 million interest earnings on ARPA funds. The proposed revision also increases public safety and UDPD Community Affairs Officers, increases Fire Protection for residents and commuters, and increases the budget for Recreation. The goal is to ensure that quality of life in Upper Darby Township can be maintained in the 2024 budget and beyond.

Who would pay an Earned Income Tax in Upper Darby?
If the Township enacted a 1.0 percent earned income tax, Upper Darby residents, regardless of where they work, and non-residents commuting to Upper Darby would be subject to the tax. If a commuter’s home municipality levies a resident EIT, then the non-resident EIT revenue would be remitted to the home municipality first. For example, if a commuter’s home municipality levies a 0.5 percent EIT, 0.5 percent would be remitted to the home municipality and the other 0.5 percent would be remitted to Upper Darby.  

What income is exempt from the earned income tax?
Income such as dividends, interest, income from trusts, bonds, insurance proceeds and stocks (Schedule D) is exempt. Also exempt are payments for disability benefits, retirement pay, pensions (except payments deemed as Early Distributions), social security payments, public assistance or unemployment compensation payments made by any governmental agency, any wages or compensation paid by the United States for active service in the armed forces of the United States including bonuses or additional compensation for such service, supplemental unemployment compensation from employers or unions and clergy housing allowance.

If I pay an earned income tax already will I have to pay Upper Darby’s tax, too?
Residents who work in other municipalities that levy a non-resident EIT currently pay that tax wherever they work. For example, if an Upper Darby resident works in the City of Chester, they currently pay 2.0 of their gross earnings to Chester. If Upper Darby levied a 1.0 percent tax, the resident would pay 1.0 percent EIT to the Township and 1.0 percent to the City of Chester. There would be no change in this resident’s total tax burden, but the amount paid would be split between the municipalities. In this case, there is a tax shift, but not a tax increase.

Keystone Collections Group, which collects EIT on behalf of all taxing bodies in Bucks, Chester, and Delaware counties, provided data showing that 8,500 Upper Darby residents paid a total of $2.4 million in non-resident EIT to municipalities in these counties in 20219. Most of this revenue came from residents who work in municipalities with a non-resident EIT of at least 1.0 percent. About 1,400 of these residents (or 17 percent) paid less than 1.0 percent in non-resident EIT and would see an increase in their total tax burden if the Township enacted a 1.0 percent tax.   

There is one important exception to this arrangement. Upper Darby residents who work in the City of Philadelphia would continue to pay that City’s non-resident EIT (currently 3.44 percent), without any revenue coming back to the Township, even if Upper Darby had a resident EIT. They would see no change in their tax burden, and Upper Darby would not collect revenue from these residents. 

Non-residents who work in Upper Darby could pay earned income taxes to the Township, depending on whether their home municipality levies a resident EIT. If a commuter’s home municipality levies a 0.5 percent tax on its residents, then the commuter would pay an additional 0.5 percent to Upper Darby. If the commuter’s home municipality levies an EIT of 1.0 percent or more, there would be no change to their tax bill and Upper Darby would not receive any additional tax revenue. Census data from 2020 shows that there were about 15,000 commuters into Upper Darby that year.

If I live in Upper Darby Township AND I work in Upper Darby Township, will I have to pay the Earned Income Tax twice?
No, individuals who live and work in Upper Darby Township would only pay the tax once. If the tax is passed at 1% then you would only pay 1% as a resident. You would NOT pay the "commuter" EIT.

Which Delaware County Municipalities have an Earned Income Tax?

Source: https://dced.pa.gov/local-government/local-income-tax-information/psd-codes-and-eit-rates/ 

How would I pay the tax?
In most cases, your employer will deduct the EIT from your regular paycheck.  If your employer does not deduct the tax, you are self-employed, or you withdraw money from a deferred compensation plan, you would be responsible for filling out the appropriate EIT forms and making payment on said amounts.  

When will the Earned Income Tax take effect?
There will be a public hearing on Ordinance 3146 on Wednesday, November 29, 2023 at 7pm. If the Ordinance is passed then the tax would take effect on January 1, 2024. 

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Financial Reports Timeline

December 8, 2021: EConsult Solutions releases its Final Report on the Strategic Management Planning Program including a baseline financial forecast. Recommendations included implementing a Realty Transfer Tax and an Earned Income Tax.

April 20, 2022: Kapoor Group presents publicly a report on Upper Darby’s Key Financial Background and Concerns which detailed issues related to the declining fund balance and the increases in the general fund expenses over the last 6 years. 

Summer 2022: Upper Darby begins working with PFM on a Five Year Financial Management Plan through a second STMP grant from the PA Department of Community and Economic Development

August & September 2023: PFM finalizes its report and presents it at a Town Hall.

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