The Seattle head tax is the informal name for the city’s JumpStart Payroll Expense Tax, a quarterly tax on large employers with highly paid workers in Seattle. For 2026, a business owes the tax only if its total Seattle payroll reaches $9,074,409 and it pays at least one employee $194,452 or more during the year. Rates run from 0.746% to 2.557%, depending on the size of the business and the compensation level of each qualifying employee. Every dollar figure adjusts for inflation each January, so the thresholds shift annually.1City of Seattle. Payroll Expense Tax
The tax is levied on the employer, not withheld from employee paychecks, and has been in effect since January 2021 under Chapter 5.38 of the Seattle Municipal Code.2Seattle.gov. Ordinance 126108
Which Businesses Owe the Tax
Two separate thresholds must both be met. First, your total payroll expense for employees working in Seattle has to hit $9,074,409 for 2026. Second, you must have at least one employee earning $194,452 or more. If your Seattle payroll clears the first threshold but no individual employee reaches the compensation floor, you owe nothing.1City of Seattle. Payroll Expense Tax
How Seattle Decides Who Counts as a Seattle Employee
Only compensation tied to Seattle work goes into the calculation. Businesses pick one of two methods.
The Primarily Assigned method counts an employee if their main work location is inside Seattle, meaning more than half of their duties are performed there. For employees without a fixed location, they count if they perform at least 50% of their work in the city; if they don’t hit 50% anywhere, the tiebreaker is whether they live in Seattle.
The Hours Method allocates each employee’s compensation proportionally based on hours worked in Seattle versus hours worked elsewhere. Businesses using this method can exclude any employee who works fewer than 40 hours in Seattle during the whole tax year. This approach tends to help companies with staff who split time across cities, but it requires contemporaneous time records.
What Counts as Compensation
The tax base goes well beyond base salary. Compensation includes wages, salaries, commissions, bonuses, stock grants, gifts, and stipends. In Seattle’s tech-heavy economy, equity grants matter: a stock package can push an employee past the $194,452 threshold even when base pay sits below it. Compensation paid to employees working entirely outside the city doesn’t factor into the threshold calculation or the tax itself.
2026 Rates
The rate depends on two things at once: the size of the business and the pay level of each qualifying employee. Businesses fall into one of three tiers based on total Seattle payroll:1City of Seattle. Payroll Expense Tax
- Tier 1: Seattle payroll under $129,634,413
- Tier 2: Seattle payroll of $129,634,413 up to just under $1,296,344,132
- Tier 3: Seattle payroll of $1,296,344,132 or more
Within each tier, the rate depends on how much each individual employee earns:
- Employees paid under $194,452: no tax on that employee’s compensation.
- Employees paid $194,452 to $518,537: 0.746% for Tier 1 and Tier 2; 1.492% for Tier 3.
- Employees paid $518,538 or more: 1.811% for Tier 1; 2.024% for Tier 2; 2.557% for Tier 3.
The rate applies to the full compensation of each qualifying employee once they clear the $194,452 floor, falling into the bracket that matches their pay level. A Tier 1 business with an employee earning $250,000 calculates the tax on that employee’s full $250,000 at 0.746%. A Tier 3 business with an employee earning $600,000 pays 2.557% on that employee’s compensation.
Who’s Exempt
Several categories of businesses owe nothing even if they would otherwise clear the thresholds:3Seattle City Council. Record No CB 119772
- Small businesses with total Seattle payroll below the inflation-adjusted threshold ($9,074,409 for 2026) owe nothing and have no filing obligation.
- Grocery businesses are fully exempt, a carve-out designed to prevent the tax from raising food costs.
- Entities with a recognized exemption under IRC Section 501(c), 501(d), or 401(a). This covers hospitals, charities, religious organizations, trade associations, social clubs, and pension trusts, not just healthcare nonprofits.
- Independent contractors whose compensation is already included in another business’s payroll expense are not separately taxed.
- Insurance companies and their agents, businesses that exclusively sell or distribute motor vehicle fuel, businesses that exclusively distribute or sell liquor, and all federal, state, and local government agencies.
Filing and Payment
The Payroll Expense Tax is filed quarterly, not annually. The four due dates are January 31, April 30, July 31, and October 31, each covering the preceding calendar quarter.1City of Seattle. Payroll Expense Tax For 2026, the first quarterly return is due April 30, 2026, covering January through March.
Businesses can file online through FileLocal-wa.gov or mail the original form with payment to the City of Seattle. Seattle provides a Payroll Expense Tax Form for the first three quarters and a separate Payroll Expense Tax Packet for the fourth quarter, which serves as the annual reconciliation. Mailed returns must be postmarked by the due date.
Because the calculation turns on where each employee works and how much they earn, accurate quarterly filing requires tracking compensation and work locations throughout the year rather than reconstructing them in December.
Penalties for Late Filing or Payment
Penalties and interest follow the framework in SMC Chapter 5.55, which references Washington state’s excise tax penalty schedule under RCW 82.32.090.4Municode. Seattle Municipal Code Chapter 5.55 – General Administrative Provisions The schedule includes a percentage-based late-payment penalty when tax due isn’t received by the deadline, an additional penalty for substantial underpayment, and the steepest penalty for evasion when any part of a deficiency resulted from intent to evade.
Operating without a required Seattle business license carries its own penalty, but it’s waived if the business gets licensed before the city notifies them. Interest accrues on underpayments from the original due date, and businesses that ignore specific written reporting instructions from the city face an additional penalty on top of standard late-payment charges. A timely but imperfect return that gets amended later is almost always cheaper than filing late.
Where the Revenue Goes
JumpStart revenue was originally earmarked for affordable housing, homelessness services, equitable economic development, and climate initiatives under the city’s Green New Deal, with the spending plan codified in SMC 5.38.055. For 2026, the proposed budget allocates roughly $224 million toward those statutory spending categories after transfers.5City of Seattle. Multi-Department Revenue Summary – Proposed 2025-2026 Budget
The 2025–2026 budget also redirected approximately $223 million in anticipated JumpStart revenue to cover general fund shortfalls, so a substantial share now supports basic city services rather than the originally designated programs. Specific 2026 allocations include roughly $15 million for youth mental health programming and $1.8 million for tenant eviction-prevention assistance, along with additional investments in economic development and technology.