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Seattle City Council Passes Payroll Expense Tax

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On Monday, the Seattle City Council passed council bill 119810, known as JumpStart Seattle, which imposes a payroll expense tax on businesses with annual payroll expenses above $7 million. If signed by the mayor, the tax will take effect in 2021 and provide revenues to reimburse the city’s emergency fund for pandemic related expenses and for other city priorities such as affordable housing, small business and community development initiatives.

While many details of the tax await interpretation and further guidance, below is the structure of the tax as based on the bill:

  • The payroll tax is a tax on employers (not employees) who have Seattle sourced payroll over $7 million. Businesses with payroll in multiple jurisdictions will be able to use a to-be-determined apportionment formula to determine the amount taxable in Seattle.
  • Seattle sourced payroll is generally determined by the same rules as for Seattle’s apportionment calculation, which looks first to the business location where workers are primarily assigned.
  • Employee compensation below $150,000 annually is not subject to the tax.
  • Compensation in defined broadly and includes wages and incentive payments, certain independent contractor payments and distributions to owners of pass-through entities related to services performed. Temporary employees are included whether or not they are from an employment agency.
  • Grocery stores are exempt, as well as certain motor vehicle fuel sellers, liquor distributors, insurance businesses and government entities who are also exempt due to state or federal preemptions. Special deductions are available for non-profit healthcare entities.
  • The tax is effective January 1, 2021 and is generally payable on a quarterly basis.
  • There is an inflation adjustment for both the $7 million threshold and the payroll expense tax rate brackets.
  • The payroll tax is currently scheduled to expire 12/31/2040.

The tax rates and payroll expense brackets are shown below. Based on the bill language, the first tax filing and payment will likely be on an annual basis, which should allow the City of Seattle to issue additional guidance and forms for this new tax in advance of the due date.

Berntson Porter is here to help businesses navigate these unprecedented times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.