SB 5873 would lessen some of the impact of two payroll tax increases

By: Emily Makings
1:12 pm
January 14, 2022

In a policy brief last year, we wrote about how UI taxes work and how they were increasing due to the pandemic. The UI tax rate is made up of three taxes, including a social tax. The social tax is based on the amount by which systemwide benefits exceed systemwide revenue. Generally, the amount of costs to be recovered by the social tax is capped at 1.22% of taxable wages.

Last year the Legislature passed SB 5061. Among other things, it reduced the cap on costs to be recovered by the social tax to 0.5% for 2021, 0.75% for 2022, 0.8% for 2023, 0.85% for 2024, and 0.9% for 2025. Despite this and other changes made to UI taxes, the average overall UI tax rate was forecast in November to increase from 1.16% in 2020 to 1.36% in 2021, 1.45% in 2022, and 1.56% in 2023.

Today Sen. Keiser introduced SB 5873. The bill would reduce the cap on costs to be recovered by the social tax to 0.5% for 2022 and to 0.7% for 2023. Also, for 2023, employers with 10 or fewer employees in a rate class higher than seven would be considered to be in rate class seven for purposes of the graduated social cost factor.

In addition to the expected increases in UI taxes under current law, premiums for paid family and medical leave increased from 0.4% of taxable wages in 2021 to 0.6% in 2022. By statute, these premiums are split between employer and employee. For 2022, the portion of the premium statutorily paid by employers is 26.78% and the portion statutorily paid by employees is 73.22%.

(However, note that the employer may choose to pay the full premium and not deduct anything from an employee’s paycheck. Also, employers with fewer than 50 employees in Washington don’t have to pay the employer portion of the paid family and medical leave premium.)

Under SB 5873, the 2022 premium rate would remain at 0.6% and the employer would still pay 26.78% of the premium. But the employee’s share would drop to 42.22% of the premium. The remainder of the premium would be picked up by the general fund–state.

There is no fiscal note for the bill yet.

Categories: Budget , Employment Policy , Tax Policy.