If you’re an employer in Washington state, it’s time to listen up. There’s a new tax in town: the Seattle JumpStart tax. So Seattle employers, read up on the new payroll expense tax and what it means for you and your business.
What is the Seattle JumpStart tax?
On July 6, 2020, the Seattle, Washington city council approved a new payroll expense tax for certain businesses operating in Seattle. The JumpStart Seattle tax took effect on January 1, 2021 and currently has an end date of December 31, 2040.
The JumpStart payroll expense tax provides services to Seattle’s low-income population. The tax is also intended to replenish Seattle’s Emergency Management Fund and Revenue Stabilization Fund (which was used up in response to COVID-19).
Who is responsible for the Seattle payroll expense tax?
The Seattle JumpStart tax is an employer-funded tax. Employers cannot make deductions from employees’ compensation for this tax.
Employers with more than $7 million in annual payroll expenses are subject to the new Seattle payroll tax. Additionally, the amount of the tax is based on the cumulative compensation of highly paid employees making $150,000 or more annually.
So, which employers must pay the tax? You need to pay the tax on employee wages if you have:
- More than $7 million in annual payroll expenses AND
- At least one employee with annual compensation of $150,000 or more
If you have more than $7 million in annual payroll expenses, pay the tax on each employee’s wages over $150,000.
The 2021 payroll tax rates range from 0.7% to 2.4% and are subject to change annually. The highest tax only applies to companies with $1 billion or more in payroll and only on employee earnings of $400,000 or more.
Take a look at a breakdown of the new Seattle payroll tax:
|Business Annual Payroll Expense||Employees With Annual Compensation of $150,000 – $399,999||Employees With Annual Compensation of $400,000+|
|$7,000,000 – $99,999,999||0.7%||1.7%|
|$100,000,000 – $999,999,999||0.7%||1.9%|
|$1 billion or more||1.4%||2.4%|
Who is exempt from the JumpStart Seattle tax?
There are a number of businesses exempt from this new tax. The following do not have to pay into the JumpStart tax:
- Businesses with annual compensation of less than $7 million in the previous year
- An independent contractor who performs services for the purposes of the Seattle business license tax and whose compensation is included in payroll expense of another business subject to the JumpStart tax
- Any business engaged in business in Seattle as a grocery business
- Businesses that are preempted from taxation by cities pursuant to federal or state statutes or regulations such as:
- Insurance businesses and their agents as defined by RCW 48.01.050 and RCW 48.17.010 and whose total revenue is exempt from the Seattle business license tax
- Businesses that only sell, manufacture, or distribute motor vehicle fuel as defined in RCW 82.38.020 and exempted under RCW 82.38.080
- Businesses that only distribute or sell liquor as defined in RCW 66.04.010 and exempted in RCW 66.08.120
- Federal and state government agencies and any local governmental entity
Also, nonprofit healthcare organizations are exempt for compensation expenses between $150,000 – $400,000 for the first three years.
For more information about whether you must pay the new tax, contact Seattle and review the legislation details.
When is the JumpStart payroll tax due?
Employers must pay the tax on a quarterly basis. However, some businesses may be eligible for an annual reporting period instead.
Recent happenings with the JumpStart payroll tax
In December 2020, the Seattle Metropolitan Chamber of Commerce sued the city of Seattle over the new JumpStart payroll expense tax. The Chamber believes that the tax is unlawful and will cause pandemic recovery issues.
Although the Chamber has not put a stop to the tax and it still went into effect on January 1, 2021, there’s still a chance that the lawsuit will make an impact on the tax.
Stay tuned for more details regarding the lawsuit and what it means for the JumpStart tax.
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This is not intended as legal advice; for more information, please click here.