Payroll expense tax


Beginning in January of 2021, the City will impose a payroll expense tax on every business that had $7 million or more in Seattle-based payroll for the prior calendar year. In addition, a business must have employees with current year annual compensation of $150,000 or more to be subject to this tax. The City of Seattle estimates that the payroll expense tax will be levied upon approximately 1% of Seattle businesses. 

Important information about the payroll expense tax:

  • Only businesses with Seattle payroll expense of at least $7 million in the prior calendar year will be subject to the tax in the current year.  All other businesses will be exempt from the tax filing requirement. 
  • The tax is imposed on the business, not the employees. A business may not make any deductions from employees' compensation to pay for this tax.
  • The tax rates are based on both the business' Seattle payroll expense and the current year's employee compensation of at least $150,000. 
  • This tax is imposed in addition to any license fee or tax imposed by the City, State or other government agency.
  • The payroll expense tax is in addition to the City of Seattle's fees for business license tax certificates and both the Washington State and City of Seattle B & O tax.

Tax Rates

The tax rates are based on the amount of the business' annual Seattle-based payroll expense and the amount of annual employee compensation of at least $150,000.   


Current year's total payroll expense of less than $100 million

Current year's total payroll expense of $100 million or more, but less than $1 billion

Current year's total payroll expense of $1 billion or greater

Total annual payroll expense for employees who have annual compensation of $150,000 to $399,999.99 in the current year

Rate = 0.7%
(Seven-tenths percent)

Rate = 0.7%
(Seven-tenths percent)

Rate = 1.4%
(One and four-tenths percent)

Total annual payroll expense for employees who have annual compensation of $400,000 or more in the current year

Rate = 1.7%
(One and seven-tenths percent)

Rate = 1.9%
(One and nine-tenths percent)

Rate = 2.4%
(Two and four-tenths percent)


In addition to businesses with less than $7 million annual payroll expense for the most recent complete calendar year, some businesses are exempt from the payroll expense tax. Grocery businesses and businesses that are preempted from taxation by cities pursuant to federal or state statutes including insurance businesses, businesses that only sell, manufacture or distribute motor vehicle fuel, businesses that only distribute or sell liquor, and federal, state and local government entities.    

Get more information

Read the Code SMC Chapter 5.38

Attend the Online Rulemaking Hearing