Chapter 6.1


6.1 - What are earned income taxes?

Generally referred to Earned Income Taxes (EIT), this is a local revenue stream that flows from districts that choose to levy the tax. The EIT tax is a levy on wages, salaries, commissions, net profits or other compensation of those who earn income within the taxing jurisdiction of the LEA.

Generally, the EIT tax base is not as broad as the state personal income tax as EIT is confined to earned income only. School board authority to levy the tax is based in Act 511 of 1965. In 2018-19, 464 districts (out of 500) levied EIT (recorded in account code 6151) that generated $1.455 bn dollars statewide. In most school finance discussions where EIT is discussed it is this revenue stream in account code 6151 that is being referenced.

However, there are 10 districts (2018-19) that levy EIT under Act 1 legislation passed in 2006 (account code 6131) which required voter referenda and the funds generated from the levy were used to reduce property taxes. Those ten districts collected $75.3 million in 2019-19. All 10 of those districts levy EIT under Act 511 1965 in addition to the Act 1 levy, so they are included in the 464.

Beyond Act 511 and Act 1 authority, first class school districts have expanded taxing authority for EIT, or specifically non-business income. For example, Pittsburgh school district levies an EIT (account code 6161) under different legislative authority that generally provides a wider range of tax rate options.

First class districts accessing this authority can only levy under one or the other authority, not both. Pittsburgh collected $127 million in 2018-19 with its levy. The Philadelphia school district levied a non-business income tax (account code 6167) and collected $46.6 million in 2018-19.

In total 465 districts out of 500 levied wage taxes of some kind in 2018-19. The remaining 35 districts generally (not all) are located in the surrounding counties/suburbs of Philadelphia and do not have a wage tax due to complicating/reciprocal tax factors surrounding the Philadelphia city’s Sterling tax. Sterling tax provisions for tax payer credits makes levying the EIT tax in those districts much less effective.

The below table shows the past decade of actual 6151 EIT tax collection with an estimate for 2019-20.