In 2025, that exemption was struck down. The law itself was unconstitutional.
The exemption was a band-aid. What's underneath is a tax system that treats a barber's $80K like a corporation's $80K. That's the real problem.
If you're a freelancer, solo practitioner, food cart operator, gig worker, dog walker, hairstylist, single-member LLC owned by an individual, or any other one-person business in Philadelphia, this page explains what happened, what it costs you, and how the LIFT Act fixes it for good.
What Was the $100K BIRT Exemption?
Philadelphia has a tax called BIRT (the Business Income and Receipts Tax). Every business that does work in Philadelphia owes it, based on the money coming into your business (gross receipts) and the profit your business makes.
For years, Philadelphia had a protection in place: if your business earned less than $100,000 in gross receipts, you owed nothing. Zero. You didn't even have to file.
About 75,000 small businesses (freelancers, therapists, food cart operators, gig workers, barbers, Etsy sellers, hairstylists renting a chair, contractors working under their own name) were fully covered by this exemption.
Why the Exemption Couldn't Hold
Philadelphia's business tax was built for a different era, one where "business" meant a corporation with employees, accountants, and enterprise profits.
The modern economy looks completely different. Today's Philadelphia includes tens of thousands of freelancers, gig workers, solo practitioners, and family enterprises generating personal income, not enterprise profits.
The $100K exemption was protecting those individual businesses from a tax that was never designed for them.
But the exemption itself had a legal problem. Pennsylvania's constitution requires that all taxpayers in the same class be taxed at the same rate.
Under the exemption, a business earning $50K paid nothing while a business earning $150K paid full rate. Different effective rates within the same class. That's the kind of tiered structure Pennsylvania courts had already struck down in another case in 2017.
In 2024, a lawsuit challenged Philadelphia's exemption on those same grounds. Philadelphia's Law Department reviewed the case and concluded the city would likely lose.
Losing could mean repaying years of tax revenue to corporations. The exemption was eliminated effective tax year 2025.
The exemption was a band-aid over a deeper problem: a tax system designed for large organized enterprises being applied to individual people running their own livelihood. The lawsuit pulled off the band-aid.
The mismatch underneath is what the LIFT Act addresses.
What This Costs Real People
For many individual businesses, the new BIRT bill is roughly one to three months of rent.
Starting with 2025 tax returns (due April 2026), every Philadelphia business must file a BIRT return, regardless of how much they earn.
One Philadelphia therapist reported a BIRT bill over $5,700 for 2025 alone. Freelancers, gig workers, food cart vendors, and solo practitioners across the city are facing the same shock.
Individual businesses generate personal income: the money you live on. Philadelphia's tax system treats both the same: a barber's $80,000 (their salary) gets taxed like a corporation's $80,000 (their reinvestable profit).
That structural inequity is what the LIFT Act is designed to fix.
There's a complexity problem on top of the cost. Individual business owners must calculate two separate taxes (BIRT and the Net Profits Tax) and then reconcile them through credits.
Many small operators end up paying an accountant more than the tax itself just to file correctly. The system costs more to comply with than it generates in revenue from this class of business.
How Does the LIFT Act Fix It?
The LIFT Act takes a different approach: a new legal structure built to hold up in court.
The Old Approach (struck down)
Exempted businesses based on income level. This created different effective tax rates within the same class of taxpayer, which is exactly what Pennsylvania courts have ruled unconstitutional.
The LIFT Act Approach
Creates an entirely new tax classification for sole proprietors and single-member LLCs owned by an individual. Every business in this new class gets the same treatment: zero BIRT. Same rate for everyone in the class = constitutional.
Sole proprietors and single-member LLCs owned by an individual would still pay the Net Profits Tax, without BIRT layered on top.
The City's Own Lawyer Already Confirmed It Works
At the March 25, 2026 Committee of the Whole hearing, Francis Beckley, Revenue Chief Counsel, stated: "I would confirm that the bill as written does satisfy the uniformity clause." That's the city's own attorney, before City Council. (watch at 1:38:13 →)
The Class Already Exists in the Forms and Data
Philadelphia's BIRT and Net Profits Tax forms already ask filers to check a box identifying their business type: individual, partnership, or corporation. This class already exists in the city's data. The LIFT Act simply recognizes it. The mechanism is already built in.
Philadelphia City Council Bill 251026 was introduced November 20, 2025, backed by the LIFT Philly coalition representing more than 75,000 individual-owner business entities across every zip code, industry, and category.
Will wealthy S-Corps and C-Corps switch to avoid BIRT?
Some city officials have asked: won't wealthy S-Corp and C-Corp owners just restructure as LLCs to avoid BIRT?
The math says no. S-Corps save roughly 15% in federal self-employment taxes. Those savings have nothing to do with Philadelphia's tax code. That federal advantage overwhelmingly outweighs any BIRT benefit from restructuring.
Converting from S-Corp to sole proprietor also costs $4,000–$11,000 in legal fees and triggers a 5-year IRS lockout. No rational accountant recommends it.
Note: the LIFT Act exemption applies only to sole proprietors and single-member LLCs owned by an individual. S-Corps and C-Corps remain in their existing tax class.
Will real estate developers use this as a loophole?
For capital-based businesses like real estate development, capital access usually becomes the real constraint before tax form does.
A sole proprietor or a single-member LLC wholly and directly owned by one individual is still limited by that individual's own net worth, liquidity, guaranty capacity, and borrowing capacity. Lenders often underwrite deals based on exactly those factors.
So as projects get larger, owners usually need more equity, more balance-sheet support, more risk-sharing, and stronger guarantors — pushing them toward outside investors, multi-member LLCs, joint ventures, or other shared-capital structures.
A large real estate firm is not limited by one person's net worth. A single individual owner is. That is why, as capital needs rise, rational businesses move away from the proposed Unincorporated Individual Class — not toward it.
This class is far more likely to fit small, individual, mom-and-pop property owners than large real estate firms.
Why a Law, Not a Grant Program?
The city has talked about offering grants or technical assistance to help affected businesses.
The math doesn't work at scale. A grant program large enough to meaningfully help would cost roughly $38 million and could reach maybe 5,000 businesses, through an application process most small operators don't have time to navigate.
Structural reform (fixing the tax code instead of subsidizing a broken one) costs about $29.5 million in foregone revenue and provides relief to more than half of all businesses in the city, automatically.
No applications. No first-come, first-served. No one left out.
What Can You Do?
The LIFT Act needs City Council to act. That means passing the bill on its own, or including it as part of the city budget.
Either path requires Council members to hear from the people this affects.
There are hearings scheduled where Philadelphia residents can show up and speak, from City Council town halls in April and early May, to the Budget Hearing on May 6 where Council decides which bills move forward.
See the full schedule and locations →
If you're a freelancer, independent contractor, sole proprietor, or single-member LLC owned by an individual doing business in Philadelphia, this directly affects you. Signing takes 60 seconds and puts your name on record with your elected representatives.
Your story matters more than statistics. Council members hear from lobbyists every day. They almost never hear from a barber, a therapist, or a food cart operator. That's what the hearings are for.
If this does not get fixed, responsibility will fall on the people who claim to lead this city.
And if you are not one of those leaders, then we are sorry.
We are sorry that this system has failed you.
But we will not quit until this gets done.
If this does not get done this budget season, our leaders will have made a choice: to give corporations a tax break paid for on the backs of working Philadelphians.
They designed a system where corporations can improve profits by laying off workers. If those same workers are forced into self-employment to survive after a layoff, they can face a higher tax rate than the corporations that let them go.
That is backwards. That is unjust. And we will keep fighting until it changes.