07 June 2018 Seattle, Washington employer payroll tax takes effect January 1, 2019 Seattle, Washington Mayor Jenny A. Durkan signed into law a new city ordinance that effective January 1, 2019, will impose a new employer payroll tax on Seattle businesses with $20 million or more in taxable gross income. According to the mayor's news release, the new tax will be used to help address Seattle's homelessness crisis. CB 119250 (signed Ordinance 125578) is a scaled down version of the previously proposed employer payroll tax that would have imposed a yearly surcharge of $500 per employee. The final version calls instead for a yearly surcharge of $275 per employee. The tax will apply to businesses with employees working in the city, regardless of whether the place of business is located within or outside of Seattle. The new business tax is expected to generate annual revenue of $47 million for use in funding programs to address homelessness and to build new affordable housing. Enactment in 2017 of an income tax on was wages was ruled unconstitutional under a King County ruling. The city is appealing that ruling. Effective January 1, 2019, through December 31, 2023, an "Employee Hours Tax" is in effect that will impose an annual employer surcharge of $275 ($68.75 per quarter) per full-time equivalent employee (FTE). Alternatively, and at the employer's option, the tax can be computed at $0.14323 per actual hours worked by all employees in Seattle. If the quarterly FTE method is chosen by the employer, the number of FTE employees must be calculated as the number of a business's full-time employees for the quarter, plus the sum of the hours worked by part-time employees in the quarter divided by 480 hours. A full-time employee is defined as an employee who works at least 480 hours in a quarter of a calendar year. Besides businesses with $20 million or less in taxable gross income, the ordinance will exempt the following from the tax: (6) hospitals and certain businesses engaged primarily in the provision of comprehensive healthcare services. As we reported previously, former Mayor Ed Murray signed an ordinance passed by the Seattle City Council in mid-2017 to establish a city income tax on city residents who are high earners. This is despite the fact that Washington state is one of nine states that do not have a personal income tax. Effective with income received on and after January 1, 2018, resident individuals earning over $250,000 and joint filers earning over $500,000 would have been required to pay an income tax of 2.25% on total income. These income levels would have been adjusted annually on and after January 1, 2019 by inflation. The city income tax would have been due annually on April 15, accompanied by a return to be developed by the city's finance director. The ordinance did not provide for the withholding of city income tax by the individual's employer. The ordinance was struck down in late 2017 by King County Superior Court Judge John Ruhl. Then Mayor Murray pledged that the ruling would be appealed. According to news sources, several large Seattle employers have denounced the enactment of the new employer tax. Washington State Senator Mark Schoesler announced that he plans to introduce preemption legislation in 2019 that would ban localities from enacting employee hours or head taxes, like Seattle's Employee Hours Tax. The proposed bill would state: "A city or town may not impose a tax measured by employee wages, employee hours, or the number of employment positions, which is initially enacted on or after January 1, 2018."
Document ID: 2018-1174 | |||||||||
