Washington has steadily expanded its tax base in recent years, and statewide payroll-tax concepts to fund healthcare and social services have surfaced in recent legislative sessions. None have become law, but they reflect an ongoing pattern, and similar proposals are likely to return. Here is the tax landscape Washington employers actually face today, and what to watch for next.
The most recent example was House Bill 2100 in the 2026 session: Representative Shaun Scott's proposal for a 5% payroll tax on large companies' compensation above roughly $125,000 per employee, funding a new "Well Washington Fund" and modeled on Seattle's JumpStart tax. More than 12,000 people signed in against it; it received a single committee hearing and never advanced. The session adjourned on March 12, 2026, which closed the two-year biennium — so any payroll-tax proposal would have to start over in the 2027 session that begins next January.
Washington's Existing Payroll Taxes
Washington already imposes several payroll-related taxes. WA Cares, the long-term care program, is a 0.58% premium on employee wages that employees pay and employers withhold and remit. Paid Family and Medical Leave is funded by a payroll premium shared between employers and employees. Unemployment insurance is employer-paid, with rates that vary by the employer's experience rating. Any new broad payroll tax would stack on top of these, which is a large part of why such proposals draw strong opposition from employers.
The Broader Trend
Washington has steadily widened its tax base: the B&O gross-receipts tax, with rates that vary by business classification; the capital gains excise tax of 7% above the standard deduction and 9.9% above $1 million; and a new 9.9% income tax on income above $1 million under ESSB 6346, effective January 1, 2028. The state's "no income tax" reputation no longer holds.
What This Means for Founders and Employers
For a founder with a large non-QSBS exit, the combined burden can be steep. Federal capital gains tax (20%), the 3.8% net investment income tax, and the Washington 9.9% capital gains tax reach roughly 33–34% on a large gain. From 2028 the new 9.9% income tax also reaches that gain, but it credits the Washington capital gains tax already paid (ESSB 6346 § 205), so the two state taxes do not stack to ~19.8% on the same dollars — the Washington layer stays around 9.9%. Qualifying for the QSBS exclusion under Section 1202 remains the single most valuable planning tool. The practical takeaway: model your full Washington tax picture rather than any one piece, watch the legislature each session for new revenue proposals, and if you hold appreciating equity, plan your exit timing around the 2028 income-tax effective date.
Keep Reading
- Washington's New Income Tax: The Complete Guide for Founders, Investors, and High Earners
- Stock Option Exercise Timing: Planning Before Washington's 2028 Income Tax
- ING Trusts Won't Save You from Washington's Income Tax. Here's What Might.
- The Washington Supreme Court Just Fast-Tracked the Income Tax Referendum Case. Here's What It Means.
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This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.
