HB 2100
In CommitteeHouse
Payroll expense tax
Enacting an excise tax on large operating companies on the amount of payroll expenses above the minimum wage threshold of the additional medicare tax to fund services to benefit Washingtonians and establishing the Well Washington fund account.
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 5% payroll tax on large employers for wages paid to employees earning over $125,000, to help replace federal funding Washington stands to lose due to 2025 federal budget cuts — especially in Medicaid, SNAP, and higher education. Revenue will fund state programs supporting health care, education, housing, and energy, and a new oversight board will track how the money is used.
- Imposes a 5% payroll expense tax on large operating companies (those with over 20 employees, $5 million or more in gross receipts, and a U.S. address) for wages paid to employees earning more than $125,000 per year.
- Creates the Well Washington Fund Account in the state treasury; starting July 1, 2027, 51% of tax revenue will be deposited there, with the rest going to the state general fund.
- Requires that funds in the Well Washington Fund be used only for higher education, health care (especially Medicaid), cash assistance, and energy/housing programs.
- Establishes a 25-member oversight board (10 state legislators and 15 gubernatorial appointees with expertise in key policy areas) to monitor fund usage and report annually to the legislature.
- Provides a credit for employers who pay local city payroll expense taxes, up to the amount of state tax owed.
- Exempts employers with less than $7 million in total employee wages in the prior year from the tax.
- Includes standard tax enforcement tools: penalties for late filing or underpayment, interest on overdue taxes (1% per month), liens, wage garnishment, and asset seizure.
Who is affected
- Large operating companies — Large employers with over 20 employees, $5 million or more in gross receipts, and a U.S. address will pay a 5% payroll tax on wages paid to employees earning more than $125,000 annually. The tax cannot be passed to employees.
- Small employers and cities with local payroll taxes — Small employers with less than $7 million in total employee wages in the prior year are fully exempt from the tax. Cities that impose their own payroll expense taxes may receive credits against the state tax.
- High-income workers — Workers earning over $125,000 per year are the basis for the tax, but they are not directly taxed — their employers pay the tax on wages above the threshold.
- Washington residents who rely on state-funded health, education, and safety-net programs — The state will use revenue from the tax to fund programs including Medicaid, higher education, SNAP (food stamps), housing, and clean energy — helping offset federal funding cuts.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
The bill directly mitigates the projected $51B federal Medicaid cut by dedicating 51% of revenue to health care, especially Medicaid — preserving coverage for up to 250,000 Washingtonians at risk of losing eligibility. This is a targeted, evidence-based response to a concrete fiscal threat, with clear statutory purpose and funding allocation.
HealthcarePeopleRef: Sec. 2(2); Sec. 43Revenue will fund higher education programs, helping offset the loss of federal financial aid under H.R. 1 — protecting access for low- and middle-income students who rely on state and federal grants. This supports long-term economic mobility and addresses a documented risk of federal program withdrawal.
EducationPeopleRef: Sec. 2(2); Sec. 43By funding SNAP (food stamps) and cash assistance, the bill helps prevent a projected 900,000-person loss in food benefits — directly supporting food security and reducing poverty-related health and social harms. SNAP has well-documented public health and economic multiplier effects (USDA, 2022), so preserving it benefits community stability.
Public SafetyPeopleRef: Sec. 2(2); Sec. 43The Well Washington Fund includes housing and energy programs, helping address Washington’s chronic housing shortage and climate resilience needs. While the bill doesn’t specify dollar amounts for housing, the statutory purpose creates a dedicated funding stream for a high-need area where state resources are already stretched.
HousingPeopleRef: Sec. 2(2); Sec. 43The tax is structured to avoid passing cost to employees (explicit statutory prohibition on wage deductions), and targets only wages over $125,000 — meaning most Washington workers (median household income ~$95K) are unaffected. This makes it a relatively fair, progressive revenue source compared to broad-based taxes like sales or property tax.
FinancialPeopleRef: Sec. 4(2)(a); Sec. 4(2)(b); Sec. 4(1)(a)
Potential Concerns (5)
The 5% payroll tax on wages over $125,000 may incentivize large employers to reduce high-wage hiring, freeze salaries, or shift high earners to contractor status to avoid triggering the tax threshold — especially given the $7M total wage exemption creates a cliff edge for employers near that threshold. While the tax is legally imposed on employers, economic incidence theory and empirical studies (e.g., CBO 2021, OECD 2019) suggest employers often reduce compensation or hiring in response to payroll taxes, particularly when the tax is visible and administratively enforced like unemployment insurance taxes. The $7M exemption may also distort business structure decisions (e.g., splitting operations across entities) to stay below the threshold.
Business & EmploymentIndustryRef: Sec. 4(1)(a); Sec. 4(2)(a); Sec. 4(2)(b)The tax applies only to large operating companies (20+ employees, $5M+ gross receipts), but the $7M total wage exemption and the ability to structure around the threshold disproportionately benefit large, sophisticated employers with legal/financial teams, while smaller firms with similar revenue but higher wage concentration may be more vulnerable to compliance costs and administrative burden. This creates a regressive burden on mid-sized firms and may entrench incumbent advantage — effectively shielding large corporations (e.g., Amazon, Microsoft, T-Mobile) that can absorb or offset the tax more easily than smaller competitors.
Business & EmploymentIndustryRef: Sec. 4(1)(a); Sec. 4(2)(a); Sec. 4(2)(b)The tax is not deductible as a business expense under current federal tax law (per IRS guidance on similar state payroll taxes), meaning the full 5% cost is borne by the employer — potentially reducing profitability and capital reinvestment. While the bill cites federal tax cuts to S&P 500 firms as justification, it does not offset this new liability for Washington-based firms, which could reduce competitiveness relative to out-of-state rivals not subject to this tax.
Business & EmploymentIndustryRef: Sec. 4(1)(a); Sec. 4(2)(a); Sec. 4(2)(b)The tax’s design — taxing only wages above $125,000 — creates a marginal tax spike at the threshold, potentially distorting compensation decisions (e.g., bundling bonuses, delaying raises, or offering non-wage benefits). This could reduce wage growth for workers near the $125K line, especially in high-cost sectors like tech and healthcare where many workers cluster just below or above the threshold.
Business & EmploymentLean industryRef: Sec. 4(1)(a); Sec. 4(2)(a); Sec. 4(2)(b)The bill’s sunset-free design and lack of a cost-benefit review mechanism mean long-term fiscal sustainability is unaddressed. If federal cuts are less severe than projected, or if alternative revenue sources emerge, the tax may persist without oversight — locking in a new permanent tax on high-wage labor without sunset or automatic review, potentially straining business-government relations over time.
Local GovernmentIndustryRef: Sec. 2(2); Sec. 3(4); Sec. 43
Who Is Most Affected
Large employers (20+ employees, $5M+ gross receipts) will pay the tax on high-wage employees, but can absorb it better than smaller firms. Many are Washington-headquartered (e.g., Amazon, Microsoft), and the bill acknowledges their recent federal tax windfalls — making this a targeted reallocation of corporate tax savings. The $7M wage exemption protects smaller firms, but the $5M gross receipts threshold still captures many mid-sized employers.
Workers earning over $125,000 are the tax base but not direct payers. Their employers may adjust compensation (e.g., freeze raises, reduce bonuses) to offset the tax, especially near the $125K threshold. However, since the tax only applies to wages above $125K, high earners in high-cost areas (e.g., Seattle tech) may see modest net impact — but wage growth could slow for those just above the threshold.
Small employers with < $7M in total wages are fully exempt — protecting mom-and-pop shops, local restaurants, and small service firms. This avoids burdening small businesses while targeting larger, more profitable firms. However, firms near the $7M threshold may restructure to stay below it, creating administrative complexity.
Residents relying on Medicaid, SNAP, and higher education aid are the primary beneficiaries — especially low-income families, seniors on fixed incomes, students, and people with disabilities. The bill directly prevents coverage losses: 250K Medicaid beneficiaries, 900K SNAP recipients, and thousands of students facing aid cuts. This is the clearest positive impact group.
Cities with existing payroll taxes (e.g., Seattle’s 1.5% HR tax) can claim credits against the state tax, reducing double taxation. This supports local fiscal autonomy and encourages coordination between city and state. However, cities without payroll taxes gain no direct benefit — and may see reduced state grants if general fund revenue is reallocated.