The city council of Seattle City approved a new payroll expense tax effective January 1, 2021 and with a sunset date of December 30, 2040. Employers with more than $7 million in payroll expenses will be subject to this tax. In addition, the assessment of this tax will be applied to the salaries above $150,000 of the compensation expense. The tax rates will vary from 0.7% to 2.4% for employers based on two factors total business payroll expense and ranges of payroll expense of annual compensation above $150,000. The agency plans to adjust the tax rates annually starting January 1, 2022 and thereafter. The JumpStart payroll expense tax is an employer funded tax and employers may not make any deductions from the employees’ compensation to fund this tax.
Breakdown of tax rate assignment
Business payroll expense | Payroll expense of annual compensation above $150,000 (ranges) | Tax rate assignment |
$7,000,000 to $99,999,999.99 | $150,000 to $399,999.99 | 0.7% |
$7,000,000 to $99,999,999.99 | $400,000 or more | 1.7% |
$100,000,000 to 999,999,999.99 | $150,000 to $399,999.99 | 0.7% |
$100,000,000 to 999,999,999.99 | $400,000 or more | 1.9% |
$1,000,000,000 or more | $150,000 to $399,999.99 | 1.4% |
$1,000,000,000 or more | $400,000 or more | 2.4% |
Please follow these steps to determine which tax rate will be applied to a business for 2021 tax year:
Not all businesses are subject to this payroll expense tax. Following below is a list of businesses that are exempt from this tax:
However, nonprofit healthcare organizations are exempt for their compensation expenses between $150,000 and $400,000 for the first three years.
Employers should review the agency guidelines to determine whether they will be subject or exempt from the JumpStart tax. For more information regarding the new tax ordinance, please click here.
Thank you for choosing Paylocity as your Payroll Tax and HCM partner.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.