The historically large tax package that was adopted earlier this year increased business taxes significantly. The adopted package did not include a payroll expense tax, though one was considered during the 2025 session (SB 5796). SB 5796 would impose a 5% tax on wages over the Social Security taxable wage base ($176,100 in 2025 and $184,500 in 2026). Employers with total employee wages of more than $7 million would be subject to the tax. There would be a credit against the state tax for payroll expense taxes paid to the City of Seattle.

Now, a new proposal, HB 2100, would similarly impose a 5% tax on wages beginning on July 1, 2026. However, HB 2100 would apply to wages over $125,000 (there would be no inflation adjustment to this threshold). The tax in HB 2100 would be imposed on companies that have more than 20 employees, more than $5 million in gross receipts, and total employee wages of $7 million or more. There would be a credit against the state tax for not only Seattle’s payroll expense tax, but for any city payroll expense taxes imposed in the future.

Under HB 2100, FY 2027 revenues from the payroll expense tax would be deposited in the general fund–state (GFS). Beginning in FY 2028, 51% of revenues would be deposited in a new “well Washington fund account” and 49% would go to the GFS. The well Washington fund account could be used “only for higher education, health care (especially medicaid), cash assistance programs, and energy and housing programs.” This is a very broad range of allowable expenditures, but the revenues deposited in the new account would not feed into the constitutionally-required transfers to the budget stabilization account. This is particularly concerning given the volatile nature of this type of tax.

Both SB 5796 and HB 2100 try to frame their proposals as simply extensions of federal taxes we already pay—Social Security taxes for SB 5796 and the additional Medicare tax for HB 2100. Although the wage thresholds for the state tax proposals match the federal thresholds, there is really no policy nexus.

The HB 2100 connection is particularly questionable. The bill states,

The legislature finds that all high earners in the United States are subject to an ‘additional medicare tax.’ For married individuals filing separately, the surtax is .9 percent of wages made above the $125,000 threshold; unlike the standard medicare tax, this surtax is not divided equally between the worker and their boss. The legislature finds that if employees can bolster the social safety net, so can their employers.

Very few married people file separately. According to the IRS, the additional Medicare tax thresholds are $250,000 for married people filing jointly, $200,000 for single filers, and $125,000 for married people filing separately. Yet HB 2100 ties its threshold to the $125,000 figure.

There is no fiscal note for HB 2100, but the SB 5796 fiscal note suggests that there would not be any revenues in FY 2027. The Employment Security Department writes,

The technical build out for implementing wage reporting, tax assessments and payments, employer exemptions, and city credits will take 9-12 months of dedicated work including a 3-month stabilization period following implementation to make sure technology is accurately assessing and collecting the new tax as intended. This work is assumed to begin July 2025, which results in production and deployment prior to Oct 1, 2026, when the first wage reporting and tax assessments would begin based on a July 1, 2026, effective date.

If either SB 5796 or HB 2100 is adopted next year, this technical build-out would presumably not begin until July 2026, which would make it impossible for the tax to be imposed beginning July 1, 2026 and would likely shift the first year of collections to FY 2028.

Finally, HB 2100 claims that “Washington has one of the most corporate-friendly tax regimes of any state in the country.” In fact, in FY 2023, businesses in Washington paid the nation’s 10^th highest taxes per employee and 49.6% of all state and local taxes in Washington. (And those figures do not reflect the tax package adopted this year.)