As Washington’s Legislature gears up for the 2026 session, a new statewide payroll tax has emerged as one of the most controversial revenue proposals. Modeled on Seattle’s JumpStart tax, the proposal—formally called the Well Washington Fund—would levy a 5 % tax on high‑earning employees’ wages to generate billions for education, health care and social services.
Overview
Employers across industries with well‑compensated staff should understand how this tax could affect payroll budgets, hiring decisions and location strategies. Below is a concise analysis of the proposal’s purpose, mechanics and implications, along with concrete compliance takeaways.
What the Proposal Would Do
Purpose
The payroll tax aims to replace expected federal funding cuts and address Washington’s regressive tax code. Proponents say revenue would support affordable housing, higher education, Medicaid and cash‑assistance programs. Opponents argue it will discourage investment and slow job growth.
Mechanics
- Tax rate: 5 % of wages above the Social Security wage base (about $176 100 for 2026).
- Effective date: If enacted, the levy would take effect July 1 2026 and is projected to generate $2.2 billion annually.
- Scope: Applies to wages earned by employees in Washington. Employers cannot deduct the tax from employee paychecks.
Who Should Pay Attention
The tax would disproportionately affect employers with high‑earning staff. Industries likely impacted include tech, biotech, professional services and VC‑backed companies with senior compensation packages. Companies with executives earning $250 000 to $500 000+ should model potential exposure. For example, a $400 000 salary would incur tax on roughly $223 900 in wages (the amount above the Social Security wage base), resulting in an $11 195 annual tax. A $500 000 salary could trigger a $16 045 tax, significantly raising total payroll costs.
Debate
Supporters argue that Seattle’s JumpStart tax has raised hundreds of millions for affordable housing without collapsing the city’s tech sector. They believe voters will back a statewide version. Critics warn it could drive employers and high‑wage jobs out of the state and note that some companies have already shifted jobs out of Seattle after its payroll tax was enacted.
Implications for Employers
- Budgeting and forecasting: Companies should model payroll exposure under different salary bands and headcount scenarios. Forecasting tools can help estimate the impact on compensation costs for 2026–2027.
- Location strategy: Employers may reassess hiring or office locations. Evaluate how relocating roles outside Washington could change tax obligations, but consider operational impacts and employee preferences.
- Compensation structure: Review bonus and equity‑compensation structures. Consider whether raising base salaries or shifting to performance‑based bonuses may affect payroll tax liability.
- Compliance readiness: Begin preparing systems to track wages above the Social Security base, as the tax cannot be passed on to employees. HR and payroll teams should stay updated on legislative developments and be ready to implement withholding if the tax passes.
Conclusion
While the proposed statewide payroll tax represents a significant shift in Washington’s revenue strategy, its ultimate economic impact remains uncertain. Rather than characterizing it as a disaster, employers should remain vigilant, model various scenarios, and engage with policymakers during the legislative process to ensure their perspectives are represented.
