City of Seattle Imposes Employee Hours Tax

UPDATE: On June 12, 2018, the Seattle City Council repealed the recently passed employee hours tax in a seven-to-two vote.

On May 16, 2018, the mayor of Seattle signed City Ordinance Number 125578, which imposes an employee hours tax—also known as a head tax—on businesses having more than $20 million of taxable income sourced to the City of Seattle, based on the most recent calendar year. It’s effective January 1, 2019, through December 31, 2023.

Who’s Affected

Businesses having taxable gross income of more than $20 million under the City of Seattle business license tax are generally subject to the head tax.

Who’s Exempt

  • Not-for-profit organizations that hold a current tax-exempt status under Section 501(c)(3) of the Internal Revenue Code
  • Hospitals as defined in Revised Code of Washington (RCW) 70.41.020
  • Businesses primarily engaged in comprehensive healthcare services that provide at least 25% of their services to patients covered by Medicaid or Medicare and to patients who have no third-party payer.
  • Federal and state government agencies and subdivisions
  • Insurance businesses and their agents whose total revenue are exempt under the City of Seattle business license tax
  • Businesses that only sell, manufacture, or distribute motor vehicle fuel
  • Businesses that only distribute or sell liquor

How It Works

A business may choose to calculate its quarterly head tax based on one of the following two measures:

  • The number of full-time and part-time employee hours worked within the city of Seattle during each quarter of the calendar year multiplied by $0.14323.
  • The number of full-time employees plus hours worked by part-time employees divided by 480, the sum of which is multiplied by $68.75.

Based on either method of computing, the maximum tax for each full-time employee is $275 per year.

Defining an Employee

Under the new tax, an employee is defined as any person who performs work, labor, or services for a business, is on the business’s payroll, and performs any part of their duties within the City of Seattle. This includes full-time, part-time, and temporary employees or workers on a business’s payroll. Anyone who works at least 480 hours in a quarter of a calendar year is considered a full-time employee.

A business’s payroll includes the payroll of any related company that acts as a paymaster for the related entities. Members of limited liability companies, professional limited liability companies, and partners are also considered employees.

Filing Frequency

Because the head tax is an additional tax imposed by the City of Seattle, businesses that file and pay their business license tax on a quarterly basis must file and pay the head tax on a quarterly basis.

We’re Here to Help

For more information about how the new head tax may affect you or your business or for assistance in determining the appropriate amounts to report, contact your Moss Adams professional or email

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