SB 5638
In CommitteeSenate
Hospital exec. excise tax
Funding health care access by imposing an excise tax on the annual compensation paid to certain highly compensated hospital 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 new 7.5% tax on excess executive compensation at hospitals—specifically targeting the top five highest-paid non-patient-facing executives (or the top administrator) whose pay exceeds 10 times the state average wage. Revenue from the tax will fund expanded health care access, especially for underserved populations and reproductive care services.
- Imposes a 7.5% tax on the portion of annual compensation paid to the five highest-paid non-patient-facing hospital executives (or the top administrator, if not among the top five) that exceeds 10 times the state’s average annual wage (about $90,000 in 2026, based on current estimates).
- Applies only to compensation reported to the Department of Health under existing hospital reporting rules (RCW 43.70.052(3)).
- Allows hospitals to deduct compensation for work performed outside Washington if it does not support the hospital’s in-state operations.
- Requires tax returns and payments to be filed with the Department of Revenue, using forms and deadlines similar to other business taxes.
- Permits affiliated hospitals to file a single combined tax return.
Who is affected
- Nonprofit and for-profit hospitals — Hospitals in Washington that employ five or more highly compensated executives (or have a top administrator earning more than 10 times the state average wage) may owe this tax if any of those individuals receive compensation above the threshold.
- Hospital executives — Hospital executives (typically CEOs, CFOs, COOs, etc.) who are among the five highest-paid employees and do not have direct patient responsibilities may see their compensation subject to this tax if it exceeds the threshold.
- Washington residents seeking health care services — Residents who rely on the state’s health care system—especially low-income individuals, rural communities, and those seeking reproductive or mental health services—may benefit from increased funding for health access and equity programs.
- State agencies (Department of Health and Department of Revenue) — State agencies like the Department of Health and Department of Revenue will gain new responsibilities for collecting and verifying compensation data and enforcing the tax.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
The tax is projected to raise $100–$150 million annually to expand health care access—especially for underserved populations, reproductive care, and mental health—directly targeting gaps in care that disproportionately affect low-income, rural, and minority Washingtonians.
HealthcarePeopleRef: Sec. 3(1); OverviewBy taxing excessive executive compensation—particularly at hospitals that fail to meet community benefit obligations—the bill incentivizes hospitals to realign leadership priorities toward patient and community needs rather than administrative overreach.
HealthcarePeopleRef: Sec. 1(3); Sec. 3(1)Leveraging existing Department of Health reporting requirements (RCW 43.70.052(3)) reduces administrative duplication and increases transparency around hospital executive pay, enabling public oversight of nonprofit hospital obligations.
HealthcarePeopleRef: Sec. 5(2); Sec. 2(1)The out-of-state work deduction prevents double taxation of executives whose roles include multi-state system responsibilities, preserving fairness for hospitals operating across state lines while still capturing in-state excess compensation.
Business & EmploymentPeopleRef: Sec. 4 (Deduction provision)Reducing excessive administrative spending at hospitals may free up resources for staffing, safety protocols, and mental health crisis response—indirectly improving public safety by reducing strain on emergency and behavioral health systems.
Public SafetyPeopleRef: Sec. 1(2); Sec. 3(1)
Potential Concerns (5)
Hospitals—especially smaller or financially strained nonprofit systems—may face administrative and compliance costs to track and report executive compensation above the threshold, potentially diverting resources from clinical care or community health programs.
Business & EmploymentPeopleRef: Sec. 3(1)The out-of-state work deduction creates complexity and potential for disputes over allocation of executive time, particularly for executives who split time between in-state and out-of-state administrative duties (e.g., system-wide leadership), increasing compliance burden for hospitals.
Business & EmploymentLean peopleRef: Sec. 4 (Deduction provision)Hospitals may reduce or freeze executive compensation to avoid triggering the tax, potentially making it harder to recruit and retain top administrative talent—though this may also reduce administrative bloat and align leadership incentives with community benefit.
Business & EmploymentLean peopleRef: Sec. 3(1)The tax applies only to *non-patient-facing* executives, but the bill does not define “direct patient responsibilities” clearly—creating ambiguity for hybrid roles (e.g., chief quality officers, medical directors who split time between clinical and administrative duties), risking misclassification and inconsistent application.
Business & EmploymentPeopleRef: Sec. 3(1)While the tax is collected by the state, its revenue is earmarked for state-level health programs—meaning local communities (especially rural or underserved areas) may not see direct, localized benefits despite bearing the tax burden indirectly through potential hospital service reductions.
Local GovernmentLean peopleRef: Sec. 3(1)
Who Is Most Affected
Large nonprofit and for-profit hospital systems with high executive compensation (e.g., UW Medicine, Providence, Kaiser WA) are most likely to owe tax; they may adjust compensation structures or reduce administrative bloat, potentially improving community benefit alignment.
Top executives earning over $900,000 (10× $90k avg wage in 2026) face a 7.5% tax on excess pay; while this reduces take-home pay for a small group, it does not significantly impact labor market dynamics for most hospital leaders.
Low-income, rural, and marginalized communities stand to benefit significantly from expanded reproductive, mental health, and equity-focused care funded by the tax—addressing long-standing access gaps.
State agencies gain new data and enforcement responsibilities but also gain a new revenue stream to fund health equity programs; the Department of Health’s existing reporting infrastructure reduces implementation burden.
Smaller rural hospitals with fewer than five highly paid executives may be exempt, but those with high-paid CEOs (e.g., single-executive models) could be affected—though the $900k+ threshold makes this unlikely for most small facilities.