Delaware is generally regarded as a low-tax state — no sales tax, moderate income tax (top rate 6.6%), and a business-friendly corporate structure that makes it the legal home of over 60% of Fortune 500 companies. But Wilmington, Delaware's largest city, adds one layer of local taxation: a 1.25% earned income tax on wages.
Wilmington is unique in Delaware — it is the only municipality in the state that levies a local income tax. Every other city, town, and county in Delaware has no local income tax. Workers throughout the state who commute to Wilmington for work owe the city's earned income tax on their Wilmington-source wages. Wilmington residents owe it on all wages regardless of where they work.
The Wilmington earned income tax is not filed on the Delaware state return — it requires a separate city return (Form W-1) filed directly with the City of Wilmington. This filing requirement catches many new residents and employers off guard.
The Wilmington earned income tax applies to two groups at 1.25%:
If you live within Wilmington city limits, you owe 1.25% on all earned income — wages, salaries, and net profit from self-employment — regardless of where the work is performed. A Wilmington resident working in a Brandywine Hundred suburban office still owes 1.25% on all their wages.
If you live outside Wilmington but work within the city (common for commuters from surrounding New Castle County, Pennsylvania, and New Jersey), you owe 1.25% on income earned for work performed within Wilmington city limits.
Wilmington uses a physical presence standard. Remote workers who live outside Wilmington and work from home for a Wilmington employer do not owe the city earned income tax on days worked from home. Only days physically worked within Wilmington city limits count. Workers who split time between a Wilmington office and a home outside Wilmington can prorate their Wilmington-source income.
Earned income includes: wages, salaries, tips, commissions, bonuses, net self-employment income, and net partnership income from business conducted in Wilmington. Investment income (dividends, capital gains, interest), pension distributions, and Social Security are not subject to the Wilmington earned income tax.
The Wilmington earned income tax is filed on City of Wilmington Form W-1 — a separate return from the Delaware state income tax return (Form 200). These are two independent filings with different deadlines.
Employers based in Wilmington must register with the City and withhold the 1.25% earned income tax from employees' paychecks. Employers outside Wilmington are not required to withhold, but employees who work in Wilmington on any given day owe the tax on those wages. Remote workers for Wilmington employers should coordinate with their employer on correct withholding.
Self-employed individuals with net profit from business activities conducted in Wilmington file on a quarterly estimated basis (using Form W-1 quarterly payment coupons) and reconcile annually on the annual Form W-1. The same 1.25% applies to net profit from Wilmington-based business activity.
Delaware's state income tax provides the context for the Wilmington city tax. Delaware's progressive income tax rates for 2026:
| Delaware Taxable Income | Rate |
|---|---|
| $0 – $2,000 | 0% |
| $2,001 – $5,000 | 2.2% |
| $5,001 – $10,000 | 3.9% |
| $10,001 – $20,000 | 4.8% |
| $20,001 – $25,000 | 5.2% |
| $25,001 – $60,000 | 5.55% |
| Over $60,000 | 6.6% |
Combined burden for Wilmington residents: At $80,000 income, a Wilmington resident pays approximately $3,939 in Delaware state income tax (after the $110 personal credit) + $1,000 in Wilmington city tax = $4,939 combined, for an effective rate of about 6.2%. This is significantly lower than Philadelphia (Pennsylvania state 3.07% + Philadelphia city about 3.7% = about 6.8% combined — but Pennsylvania has no standard deduction, making effective rates higher), and much lower than New York City (up to 14.8% combined).
Delaware's lack of sales tax, combined with moderate state income tax and the relatively low 1.25% Wilmington city tax, makes it a genuine low-tax option for the Philadelphia-to-New York corridor.
Wilmington sits 30 minutes from Philadelphia by Amtrak and is on the SEPTA Regional Rail network. Many workers choose to live in Delaware while commuting to Philadelphia (or vice versa) specifically for tax reasons.
A Philadelphia resident who works in Wilmington owes: Pennsylvania state income tax (3.07%), Philadelphia wage tax (about 3.7% resident rate), AND Wilmington non-resident earned income tax (1.25%). Delaware also taxes the Delaware-source wages of non-residents, and Pennsylvania allows a credit for the Delaware tax. Philadelphia residents effectively pay both city taxes on their Wilmington wages.
Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia — not Delaware, which has no reciprocity with any state. The Wilmington city tax (1.25%) is separate and applies to non-residents who work in Wilmington.
A Wilmington resident commuting to Philadelphia owes: Delaware state income tax (6.6% top rate), Wilmington city tax (1.25% on all wages as a resident), AND Philadelphia non-resident wage tax (about 3.4%), plus Pennsylvania state income tax on the Pennsylvania-source wages. Delaware provides a credit for income tax paid to other states on that income; confirm with the Delaware Division of Revenue how the credit applies to Philadelphia's wage tax.
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