Philadelphia will not allow the IRC Sec. 199A deduction for the:

  • Business Income & Receipts Tax (BIRT);
  • Net Profits Tax (NPT); and
  • Wage and Earnings Tax.

Why Does the Deduction not Apply to BIRT?

Partnerships and S corporations file the BIRT at the entity level and pay the tax due. The federal deduction does not apply to them. Individuals report BIRT based on net profit from the federal Form 1040, Schedule C. The IRC Sec. 199A deduction is reported after that point so it does not apply.

Why Does the Deduction not Apply to NPT?

Partnerships with nexus in Philadelphia pay the NPT based on the partnership income. This does not include any deduction under IRC Sec. 199A. For partnerships without nexus in Philadelphia, a resident partner files a NPT return reporting its distributive share of the partnership income. The federal deduction is not allowed.

Why Does the Deduction not Apply to Wage and Earnings Tax?

The Wage and Earnings tax is not imposed on pass-through income.

If you have any questions or if you would like more information, contact Fred Schutz at (856) 722-5300 ext. 201 or Dave Gill at ext. 210.

LinkedIn