Seattle Payroll Tax Brings In $115m, Double Projections [US]

Seattle's social housing tax generated $115 million in first-year revenue, blowing past the city's $65.8 million estimate and landing 44% above even the optimistic range.

The 5% tax on annual compensation exceeding $1 million, lodged by 31 January 2026, applied to roughly 170 employers. Voters approved Proposition 1A in February 2025 with 63% support. The tax hits employers, not employees.

The Maths

An employee earning $1.1 million triggers $5,000 in employer tax (5% of the $100,000 excess). At $10 million, the bill hits $450,000. At $30 million, it's $1.45 million per employee.

The city's revenue forecasters flagged "large uncertainty" before launch, warning collections could swing between $39.2 million and $80 million. They worried employers might shift high earners to offices outside city limits to dodge the levy.

That didn't happen. Or if it did, Seattle's pool of million-dollar-plus earners is substantially larger than anyone modelled.

Pattern Recognition

This marks the third time Washington state wealth taxes have dramatically overshot projections. The state capital gains tax on stock profits came in at triple first-year forecasts. Seattle's earlier JumpStart payroll tax beat estimates by 48%.

For finance teams at affected employers, compliance looks straightforward. The tax adopts definitions from Seattle's existing Payroll Expense Tax. Compensation includes commissions, bonuses, and non-cash earnings. Filing moves to quarterly after the initial annual return.

Payroll processors need a Taxpayer Authorization Form for each client's first filing.

What It Funds

The Seattle Social Housing Developer received unanimous City Council approval on 10 February to access the funds. The agency plans to acquire existing buildings and develop new mixed-income housing, targeting residents earning 0-120% of Seattle median income.

Interim CEO Tiffani McCoy says the developer will "house hundreds of Seattleites this year alone."

The revenue is permanent and dedicated. Seattle Mayor Katie Wilson's assessment at a recent event: "This city is filthy rich."

The evidence suggests she's not wrong.