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. Employers across industries with well‑compensated staff should understand how this tax could affect payroll budgets, hiring decisions and location strategies.
What the proposal would do
Purpose
Rep. Shaun Scott, a first‑term Democratic Socialist from Seattle, argues that the payroll tax is needed to offset deep federal funding cuts in President Donald Trump’s budget and to address the state’s regressive tax code. Proponents say that revenue would be directed to affordable housing, higher education, Medicaid and cash‑assistance programs.
Structure
Under a draft of Senate Bill 5796, the tax would work like this:
- Who would pay – Employers with annual payroll over $7 million would be subject to the tax. Roughly 4,300 businesses would be affected. Companies that already pay Seattle’s JumpStart levy would be exempt.
- What’s taxed – The measure imposes a 5 % tax on payroll expenses above the Social Security wage threshold (about $176,100 for 2026). Only wages above this threshold would be taxed; employers cannot deduct the tax from employee paychecks.
- Timeline – If passed, the levy would take effect July 1 2026 and generate an estimated $2.2 billion per year.
Debate
Supporters argue that Washington needs new progressive revenue sources to replace federal dollars and to fund essential services. They note that Seattle’s JumpStart tax has raised hundreds of millions for affordable housing without collapsing the city’s tech sector. Rep. Scott told reporters he believes voters will back the proposal, citing support for the capital‑gains tax.
Critics call the tax “insane” and warn that it could drive employers and high‑wage jobs out of the state. Business groups such as the Washington Roundtable and the Seattle Metro Chamber argue that layering another payroll levy on top of this year’s record tax increases will discourage investment and slow job growth. They note that companies like Amazon have already shifted jobs out of Seattle after its payroll tax was enacted.
Implications for employers
- Higher labor costs for high earners – Any employer meeting the size thresholds and paying salaries above the Social Security wage base would see higher costs. For example, an employee earning $250,000 would trigger a tax on roughly $74,000 of wages (the amount above the Social Security wage base), resulting in an additional levy of about $3,700 per year per affected worker.
- Competitive disadvantage versus other states – Washington employers competing nationally for specialized talent may find it harder to recruit when base salaries effectively become more expensive in Washington. Critics note that states like Texas and Florida levy no income or payroll taxes, making relocation more attractive.
- Engagement is essential – Lawmakers expect heavy debate; Rep. April Berg, chair of the House Finance Committee, said “everything’s on the table” for the 2026 revenue package. Businesses should share data on how the tax might affect hiring and job growth. Personal testimony and coordinated advocacy may shape the final bill.
Conclusion
The proposed statewide payroll tax represents a potential economic disaster of major proportions. All Washingtonians should fight hard against this proposal.
