What is the Payroll Tax?
The payroll tax, also called JumpStart tax, was passed by Seattle City Council in June 2020 and went into effect on January 1, 2021. Although the tax has been in effect for the past year, the first payment of Seattle’s Payroll Tax is due January 31, 2022.
Who Pays?
The tax is levied on businesses and nonprofits with more than $7 million in Seattle employee payroll in the 2020 calendar year. The tax applies to salaries more than $150,000 annually at graduated rates, depending on both an individual’s salary and the employer’s total Seattle payroll. Full details about rates can be found on page 9 of the Department of Finance and Administrative Services (FAS) Seattle Metro Chamberistrative rule.
Two Ways to Calculate Tax Liability
Employers have two options to determine their Seattle payroll, the primarily assigned method and the hours method.
The primarily assigned method uses three cascading questions to determine whether salary was paid in Seattle:
1) Is the employee primarily assigned in Seattle?
2) Does the employee perform 50% or more of their services in Seattle?
3) Does the employee reside in Seattle?
See the flowchart on page 6 of the rule for an illustration of how to use the questions in succession.
The hours method allows employers to pay taxes on the hours an employee spent working in Seattle as a proportion of the total hours the employee worked. See page 4 of the rule or the Chamber’s earlier article for more information about the hour’s method.
Employers will select the option they would like to use to calculate their Seattle payroll on an annual basis, which will apply to ALL employees. Employers cannot calculate the tax owed for some employees using the hour’s method and others using the primarily assigned method. Employers must calculate the Seattle payroll for all employees, including those earning less than $150,000.
How to File a Tax Return
Employers can file a tax return online here or manually by downloading the form here and providing a written check. You can view a sample of the payroll tax return here. Employers with less than $7 million in Seattle payroll do not have to file a tax return or submit documentation demonstrating that the organization is under the payroll threshold that triggers the tax.
Where to Learn More and Get Your Questions Answered
Finance and Administrative Services is offering two trainings in January, one at 10 a.m. on Wednesday, January 5 (register here), and one at 10 a.m. on Wednesday, January 19 (register here). At these training webinars, the city will provide an overview of the tax and then take attendees’ questions. You can read an overview of information about the payroll tax and review the latest training PowerPoint presentation here. If you have questions, you can email: tax@seattle.gov.