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Seattle City Passed New JumpStart Payroll Tax

July 09, 2020 Alerts

Learn about the payroll expense tax for employers newly passed by the council of Seattle City of Washington state.

At a Glance

  • The council of Seattle City of Washington state passed a new payroll expense tax for employers effective January 1, 2021 through December 31, 2040.
  • The tax will be imposed on employers with payroll expenses more than $7 million and the rates will range from 0.7% to 2.4% based on the cumulative compensation of their highly paid employees with salaries above $150,000.
  • The final legislation may be found here.

Introduction

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:

  • First, determine the total business payroll expense and determine which range it falls within.
  • Second, determine the cumulative payroll expense of annual compensation of employees with salaries above $150,000.
  • Then follow the ranges of each category to determine the appropriate tax rate that should be assigned based on the ranges.
  • Rates are subject to change on January 1, 2022.

Exemption

Not all businesses are subject to this payroll expense tax. Following below is a list of businesses that are exempt from this tax:

  • Businesses with less than $7 million of compensation expense
  • 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 City 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 48.17.010, respectively, and whose total revenue is exempt from the business license tax per Chapter 5.45.
    • 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.

However, nonprofit healthcare organizations are exempt for their compensation expenses between $150,000 and $400,000 for the first three years.

Next Steps

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.


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