An Update on Seattle’s New Payroll Tax

Until December 31, 2040, the new payroll expense tax will be used for businesses operating in Seattle. The new JumpStart payroll expense tax or the New Seattle Payroll Tax will also replenish the Revenue Stabilization Fund, which was used to address the Covid-19 pandemic, Seattle’s low-income population, and the Emergency Management Fund.

Which Employers Must Pay the Tax?

The new payroll tax is an employer-funded expense tax that is not deducted from their employees’ compensation. Those employers with an annual payroll expense of more than $7 million in their yearly payroll expenses are based on the total balance of employees making $150,000 and more annually. The employers who must pay this tax must have at least one of their employees with annual compensation of $150,000 and more. Some businesses are allowed a yearly reporting period, while others must pay the new tax every quarter.

Breakdown of the New Seattle Payroll Tax

Let us look at the new Seattle Payroll Tax breakdown that is subject to change annually from 0.7% to 2.4%. Businesses with an annual payroll of $7,000,000 to $99,999,999 with employees compensation of $150,000 to $399,999 will have a 0.7% increase and those with $100,000,000 to $999,999,999. Businesses with an annual payroll expense of $1 billion or more can expect an annual increase of 1.4%.

Who is Exempted from the New Payroll Tax

Several businesses are exempted from the new payroll tax. Here are those businesses:

• Non-profit healthcare organizations with compensation expenses between $150,000 to $400,000 will be exempt for the first three years.
• Grocery businesses will also be exempted from this new tax.
• Businesses that sell or distribute liquor are also included in the exemption.
• State, federal, and local government agencies will be exempted.
• Insurance businesses and agents will be exempted as indicated in the RCW 48.17.010 and RCW 48.01.050.
• Businesses that manufacture, sell, or distribute motor vehicle fuel will be exempted, as indicated in the RCW 82.38.020 and RCW 82.38.020.

Businesses with annual compensation of below $7 million from the previous years are also exempted, along with independent contractors that provide services related to the Seattle business license tax. These services include payroll expenses of other businesses that are subject to the new payroll tax. This new tax was implemented effective January 1, 2021, despite the Seattle Metropolitan Chamber of Commerce suing the city of Seattle over the said payroll expense tax. They argue that Seattle’s new tax will further cause issues in the pandemic recovery and that it is unlawful. The Chamber has not halted the tax, but there is still a possibility that the lawsuit can impact it and make changes in the future.

Stay up-to-date on the latest in tax changes and laws to protect you and your business from future tax troubles. If you ever find yourself facing IRS and tax issues, call 206-970-4-IRS to speak to one of our tax resolution experts. There is no cost or obligation to get in touch with us and your initial phone consultation is absolutely free.