HB 1895
In CommitteeHouse
Educational assist./B&O tax
Establishing a business and occupation tax credit for small business employers providing educational assistance to employees.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill creates a tax credit for small Washington businesses that pay for their employees’ education at accredited institutions, aiming to boost workforce training and college enrollment. Businesses can claim up to $20,000 per year in credits against their business and occupation (B&O) tax, with the program running from 2026 to 2038.
- Starts January 1, 2026: Small businesses (50 or fewer employees) can claim a 100% credit against their business and occupation (B&O) tax for costs they pay directly to educational institutions for employee education or training.
- Credit cap: Maximum $20,000 per business per year, and credit can only reduce tax owed—no refunds are issued for unused credit beyond the tax liability.
- Eligible expenses: Tuition, books, and on-campus housing for employees pursuing a transfer associate degree, applied bachelor’s degree, registered apprenticeship, or stackable credential at an accredited Washington institution.
- Employee eligibility: Must be a full or part-time employee of a small business, enrolled in an eligible education program in Washington, and have applied for federal or state financial aid (e.g., the Washington College Grant).
- Application process: Businesses must apply to the Washington Department of Revenue with electronic filings, and the department must decide within 60 days of receipt.
- Sunset clause: The credit program ends for new claims on January 1, 2037, and the law itself expires on January 1, 2038, unless the legislature extends it based on performance review.
Who is affected
- Small business employers — Small businesses in Washington with 50 or fewer employees that provide tuition, books, or on-campus housing for employees enrolled in accredited education programs can reduce their business and occupation (B&O) tax liability through a refundable credit.
- Employees of small businesses — Employees working for small businesses who are enrolled in eligible education programs (e.g., community college, trade school, bachelor’s degree programs) and have applied for financial aid may receive direct financial support from their employer to cover education costs.
- Educational institutions — Educational institutions—including community colleges, universities, trade schools, and approved apprenticeship programs that participate in state financial aid programs—may see increased enrollment and direct payments from employers on behalf of employees.
- Washington Department of Revenue — The Washington Department of Revenue will administer the credit program, including reviewing applications, issuing guidance, and collecting data for performance evaluations.
Pro/Con Analysis
Potential Benefits (5)
The 100% credit for tuition, books, and on-campus housing directly lowers the cost of education for employees of small businesses—especially those who may not otherwise qualify for full financial aid—potentially increasing enrollment in stackable credentials and applied degrees.
EducationPeopleRef: Sec. 2(1), Sec. 2(6)(b), Sec. 2(6)(d)By reimbursing small businesses for employee education, the bill may incentivize retention and upskilling of existing workers, especially in sectors facing labor shortages (e.g., healthcare, skilled trades), potentially improving job quality and career mobility.
Business & EmploymentLean peopleRef: Sec. 2(6)(e), Sec. 2(6)(d)The requirement that employers pay institutions directly—rather than reimbursing employees—ensures funds go toward education, reducing risk of misuse and increasing predictability of enrollment support, especially for students with unstable housing or income.
EducationPeopleRef: Sec. 2(6)(a), Sec. 2(6)(b), Sec. 2(6)(d)Mandating electronic filing and a 60-day review window for credit applications improves administrative transparency and timeliness, reducing delays that could undermine employer participation and employee access to timely support.
Local GovernmentRef: Sec. 2(4), Sec. 2(5)The sunset clause ties renewal to measurable outcomes (5% increase in participating businesses and any increase in enrollment), creating accountability and encouraging evidence-based policy extension—potentially improving long-term alignment between education and workforce needs.
EducationPeopleRef: Sec. 3(4), Sec. 3(5)
Potential Concerns (5)
The $20,000 annual cap and non-refundable nature of the credit means many small businesses—especially those with low B&O tax liability—will be unable to fully utilize the credit, reducing its real-world impact; this limits the benefit to businesses with sufficient taxable income, not all small businesses equally.
FinancialRef: Sec. 2(3), Sec. 2(2)The requirement that employees apply for federal or state financial aid before qualifying for employer-paid education assistance creates a bureaucratic barrier and may deter participation among employees unfamiliar with or distrustful of financial aid systems, especially low-income or first-generation students.
Rights & LibertiesPeopleRef: Sec. 2(6)(d) (employee eligibility requires filing for financial aid); Sec. 2(6)(e) (employee must be enrolled in eligible program)By restricting eligible institutions to those participating in state financial aid programs, the bill may exclude some trade schools, private vocational schools, or online programs not participating in state aid—limiting access for employees seeking nontraditional or alternative education pathways.
EducationRef: Sec. 2(6)(c) (definition of 'educational institution' limited to those participating in state financial aid programs); Sec. 2(6)(b) (only covers tuition, books, on-campus housing)The program reduces state B&O tax revenue without a clear offsetting revenue source, potentially weakening public funding for K–12, higher education, or social services—services that low- and middle-income Washingtonians rely on most.
FinancialPeopleRef: Fiscal Impact section; Sec. 2(2) (credit reduces B&O tax liability, no refund)The 50-employee threshold excludes many mid-sized businesses that could benefit from workforce training, while the requirement that employees apply for financial aid may disproportionately burden part-time, hourly, or gig workers who lack stable access to benefits navigation support.
Business & EmploymentRef: Sec. 2(6)(e) (‘small business’ defined as 50 or fewer employees); Sec. 2(6)(d) (employee must be enrolled and have applied for aid)
Who Is Most Affected
Small businesses with 1–50 employees that have high B&O tax liability and employees seeking education may benefit significantly from reduced tax liability and improved workforce retention; however, those with low tax liability or few employees seeking education may see little benefit.
Employees of small businesses who are enrolled in eligible education programs and apply for financial aid may gain access to tuition support and career advancement; but those without stable access to financial aid navigation, part-time workers, or those in non-participating institutions may be excluded.
Community colleges, state universities, and approved apprenticeship programs that participate in state financial aid may see increased enrollment and direct payments; but private or non-participatory trade schools may be excluded, limiting growth in alternative education sectors.
Low- and middle-income families may face indirect costs if reduced B&O tax revenue leads to cuts in public education, childcare, or transportation—services they rely on—offsetting direct benefits to some employees.
The Department of Revenue gains administrative responsibility and data-gathering authority, potentially expanding its role in workforce development—but also faces increased workload and potential delays in processing claims.