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Bill

SB 5796

Enacting an excise tax on large employers on the amount of payroll expenses above the social security wage threshold to fund programs and services to benefit Washingtonians.

2025-2026 Regular Session Introduced by Emily Alvarado and 10 co-sponsors

Imposes a 5% tax on payroll above the Social Security wage base for large Washington employers, with an $7 million+ exemption and city payroll tax credit.

Public hearing in the Senate Committee on Ways & Means at 4:00 PM.
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Bill Summary · SB 5796

Summary of Senate Bill 5796 (SB 5796)

Overview

SB 5796 proposes a new state excise tax (Title 50C RCW) on large employers in Washington. The tax applies to payroll expenses above the Social Security wage base, beginning July 1, 2026, at a rate of 5%. The revenue would be deposited into the state general fund to support public schools, health care, social services, and other programs benefiting Washingtonians. The measure includes an exemption for smaller employers and a credit to offset city payroll taxes where applicable.

Purpose and Intent

  • Preserve and fund essential public services (public schools, health care, social services) through general fund revenues.
  • Create a more progressive and stable funding mechanism by targeting payroll expenses above the Social Security wage threshold and excluding smaller employers.
  • Address concerns about the regressive nature of Washington’s current tax system and the burden on small, low-margin businesses under the B&O framework.

Key Provisions

Tax Base and Rate

  • Beginning July 1, 2026, a payroll expense tax is imposed on each employer for wages exceeding the Social Security wage base (as determined by the Social Security Administration).
  • The tax rate is 5% on the excess wages (the portion of wages above the SS wage base).

Administration and Calculation

  • Employers remit the tax to the Washington Department (Employment Security Department) according to a process set by the commissioner.
  • Any fractional cent handling: amounts under half a cent are discarded; half a cent or more rounds up to one cent.
  • The commissioner must annually set the amount of wages excluded from tax equal to the Social Security wage base.

Exemption

  • Employers with total annual wages of $7,000,000 or less are exempt from the payroll expense tax.

Credit for City Payroll Taxes

  • A credit is available against the state tax for any eligible city payroll expense tax paid by the employer.
  • The credit equals the city payroll tax paid in the prior state tax period, limited to the amount of tax owed under the state law (no refunds).
  • The Department may contract with cities to administer this credit.

Definitions

  • Defines key terms: Commissioner, Department, Employee, Employer, Employment, Remuneration, Wages, and related concepts necessary to determine tax applicability.

Penalties

  • The act contemplates penalties for noncompliance (specific penalties not detailed in the provided text).

Affected Parties

  • Large employers with annual payrolls above $7,000,000 (subject to tax on the portion of wages above the SS wage base).
  • Small employers (≤ $7,000,000 in annual payroll) are exempt.
  • Municipalities with payroll taxes potentially affected by the city-credit provision.

Procedural and Timeline Aspects

  • Introduced: March 21, 2025.
  • Referred to: Senate Committee on Ways & Means.
  • Status: Public hearing in Ways & Means; date/time listed as March 31, 2025, at 4:00 PM.
  • Legislative actions noted: First reading on 03/21/25; public hearing scheduled for 03/31/2025.

Estimated Impact

  • Claimed to affect about 17% of Washington businesses, targeting large employers while reducing reliance on small, low-margin firms.
  • Revenue would support ongoing funding for schools, health care, and social services through the general fund.

Compiled from official sources — confirm details with the bill’s official record.

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