2025 Social Housing Tax Notice
On June 24, 2025, City of Seattle, Office of City Finance finalized Director's Rule 5-981 Social Housing Tax. You may view the new Social Housing Tax rule by selecting this link.
Social Housing Tax
Voters Approve Social Housing Tax
In a special election held February 11, 2025, the voters of the City of Seattle approved the Social Housing Tax. The tax is imposed on businesses at a tax rate of 5% on compensation that exceeds $1 million paid in Seattle to an employee. The new tax went into effect January 1, 2025.
For tax year 2025, Seattle businesses subject to the Social Housing Tax will file their return and tender tax due by January 31, 2026. Thereafter, businesses subject to the Social Housing Tax will file and pay the tax on a quarterly basis.
You may view the text of the Social Housing Tax by clicking this link.
Register for the 2025 Social Housing Tax webinar (10/15/2025 at 1:00 p.m.) here.
- Find out who is subject to the tax.
- Learn how to determine your tax liability.
- Understand tax filing requirements.
- Have the chance to ask questions about the filing and payment process.
Please be aware that written communications and webinar registration information - including email addresses, names, and business affiliations - are potentially subject to public disclosure, in whole or in part, pursuant to the Washington State Public Records Act, RCW 42.56 et seq.
Social Housing Tax FAQs
“Excess Compensation” is annual compensation paid to an employee in excess of $1 million.
No. “Excess compensation” is not linked to an inflation index.
The Social Housing Tax defines “excess compensation” as annual compensation to an employee in excess of $1,000,000. The Social Housing Tax adopts many of the definitions in the Seattle Payroll Expense Tax. Among those definitions is “compensation.” Compensation has the same meaning for purposes of the Social Housing Tax as it does for the Washington State Family and Medical Leave program. Compensation includes all payments for work performed, including commissions and bonuses and the cash value of all earnings paid in any medium other than cash and includes guaranteed payments and net distributions to owners of passthrough entities.
For employees who receive excess compensation, a business determines the amount of excess compensation paid in Seattle using either the Primarily Assigned Method or Hours Method defined in the Payroll Expense Tax. The taxpayer shall follow the same method for all employees for the entire tax year.
Hours method
The amount of compensation paid in Seattle to employees shall be:
- One hundred percent of the compensation paid to employees who perform work exclusively within Seattle; and
- For employees who perform work partly within and partly outside Seattle, the compensation paid in Seattle to those employees shall be, for each individual employee, the portion of the employee's annual compensation which the total number of the employee's hours worked within Seattle bears to the total number of the employee's hours worked within and outside Seattle.
- Taxpayers who calculate payroll expense using this method may exclude from the measure of the tax the payroll expense of employees who work within Seattle less than 40 hours during the tax year.
If the taxpayer does not select the method above, then the amount of compensation paid in Seattle to employees shall be determined as follows.
Primarily-assigned method
Compensation is paid in Seattle to an employee if:
- The employee is primarily assigned within Seattle;
- The employee is not primarily assigned to any business location of the taxpayer for the tax period and the employee performs 50 percent or more of their service for the tax period in Seattle; or
- The employee is not primarily assigned to any business location of the taxpayer for the tax period, the employee does not perform 50 percent or more of their service in any city, and the employee resides in Seattle.
An employee that performs more than 50 percent of their duties during the calendar year at a business location of the taxpayer will be primarily assigned to that business location.
Compensation includes all payments for personal services, including commissions and bonuses and the cash value of all compensation paid in any medium other than cash. Compensation means remuneration as that term is defined by the Washington State Family and Medical Leave program in RCW 50A.05.010. A list of items that are determined to be compensation can be found in Seattle Rule 5-981(2)(a)(ii).
Compensation does not include:
- Tips;
- Supplemental benefit payments made by an employer to an employee in addition to any paid family or medical leave benefits received by the employee;
- Employee exercised stock options (incentive stock options (ISOs) or non-qualified stock options (NQSOs));
- Payments provided to cover a past or future cost incurred by the employee as a result of the employee's expected job functions;
- Employer contributions into retirement or disability plans; or
- Payments to an owner of a pass-through entity that are not earned for services rendered or work performed (i.e., return of capital, investment income, or other passive activities).
Compensation includes the value of stocks transferred to the employee during the calendar year if part of a compensation package. This would include stock grants, Restricted Stock Units (RSUs), and Performance Stock Units (PSUs). Stock options and any related gains from exercising stock options are not considered compensation for purposes of the Social Housing Tax.
Yes, compensation also includes employee contributions to deferred compensation plans (e.g., 401(k), 403(b), or other deferred compensation plans) in which a portion of an employee's salary or wages are set aside to be paid at a later date.
Compensation means remuneration as defined by the RCW 50A.05.010. If the amounts are included as compensation for purposes of the Washington State Employment Security Department's State Family and Medical Leave program, then they should be included for purposes of the Social Housing Tax. If employee deductions would not reduce wages reported to the Washington State Employment Security Department (ESD) for purposes of the Family and Medical Leave program, then they would not be excluded from compensation for the Social Housing Tax.
Compensation is based on gross pay. "Excess compensation" means gross annual compensation to an employee in excess of $1,000,000.
Businesses subject to the Social Housing Tax are required to maintain and keep complete and adequate records. Records must be kept in such a manner as to enable the tax administrator to determine the Social Housing Tax liability of the taxpayer. Records retained must be presented upon request of the tax administrator and demonstrate the excess compensation of the business, including but not limited to; where employees are primarily assigned, perform their services, and reside, and employee compensation. Examples include but are not limited to; W-2 and earnings summaries and work papers and other employment tax records; work location schedules; teleworking agreements between employee and employer; payroll expense reports; copies of state employment security returns and their workpapers; etc.
A business may maintain several types of records that may be relevant to employee work hours. Examples include but are not limited to
- employee work calendars,
- employee timecard data (either electronic/spreadsheet or hard copy),
- documents generated by time tracking software,
- employee billable hours data, and/or
- Washington State Department of Employment Security records.