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If you run a business in Washington, you’ll want to know these fun facts about paying and filing payroll taxes in Washington.
Operating a business in Washington: here’s what you need to know about payroll tax
Business owners in Washington should understand that Washington is a no personal income tax state. It joins the ranks of these other states that do not have a state income tax: Nevada, Wyoming, South Dakota, Texas, Florida, Alaska, and Tennessee.
Though there is no personal income tax in Washington, you’ll need to pay and withhold federal payroll taxes and pay state unemployment tax.
Washington unemployment tax
To help workers who have lost their jobs through no fault of their own, Washington employers must pay unemployment tax. For 2022, the first $62,500 of each employee’s wage is taxed for unemployment. Rates vary based on industry and the history of claims paid to former workers.
Federal payroll taxes
There are four key federal payroll taxes, described below.
Federal income tax
Employers must withhold federal income tax (FIT) from their employees’ paychecks unless the employee is exempt.
This tax is paid only by employees, and you can determine how much to withhold by obtaining a Form W-4 from each employee. This will provide the employee’s number of dependents, filing status, and other variables, which—along with their wage information—will allow you to determine the appropriate withholding amount.Fortunately, payroll software makes these calculations easy. When you add an employee and input their information, the software automatically calculates the tax amount to be withheld.
Federal Insurance Contributions Act (FICA) is made up of the Medicare tax and the Social Security tax. In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
Additional Medicare tax
Certain employees who earn more than $200,000 in a year will be subject to the Additional Medicare tax. For 2022, you’ll withhold 0.9% of any wages above $200,000.
This tax must be withheld, but the individual employee may not be required to pay this. It will be their responsibility to determine this when they file their tax return.
Like the state, the federal government also has an unemployment tax. It’s called FUTA, Federal Unemployment Tax Act, and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but many employers only have to pay 0.6% each year.
What other payroll rules do I need to be aware of in Washington?
Here are a few items that you will also want to be aware of while operating a Washington business.
New hires in Washington
Washington state requires each person hired (new or rehired) to be reported to the Washington Economic Services Administration, Division of Child Support within 20 days of hire. File electronically with the DCS online electronic filing system.
Minimum salary threshold in Washington
The state minimum salary threshold for Washington is $52,743.60 per year (which is equivalent to $1,104.30 per week) for both small and large businesses. For computer professionals, the salary threshold is $50.72 per hour. Take a look at Washington’s salary threshold implementation schedule.
Paid sick leave in Washington
Employers are required to provide paid sick leave to employees in Washington. Employees must earn a minimum of one hour of paid sick leave for every 40 hours worked, and if the employee has 40 hours or less of unused sick leave, it must roll over to the following year.
Final paychecks in Washington
When an employee is terminated or quits, their final paycheck must be paid to them by the next scheduled pay date.
Workers’ Compensation insurance in Washington
Requirements to obtain Workers’ Compensation vary by state, this table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
Tax Incentive Programs in Washington
Washington implements dozens of tax incentive programs to help boost job creation and encourage employment in industries with higher unemployment rates.
Some of the eligible industries are aerospace, agriculture, general manufacturing, and high technology industries. You can check the complete list of industries and possible incentives at the Washington State Department of Revenue.
Payroll Expense tax in Seattle
Seattle-based companies with annual payrolls of $7,386,494 or more and at least one Seattle employee with a yearly compensation of $158,282 are subject to the payroll expense tax. Rates range from 0.7% – 2.4%.
Paid Family & Medical Leave in Washington
All Washington employees are eligible for up to 18 weeks of paid leave for medical and family reasons. They have to have worked 820 hours in the last year. Unlike the paid sick leave mentioned above, this program is administered by the State.
For 2022, this leave program is funded by a 0.6% tax on each employee’s gross wages up to the Social Security tax wage base of $147,000.
The tax can be split with up to 73.22% paid by the employee and 26.78% paid by the employer. There’s some fine print based on the size of the employer. Read more about the premiums here.
Domestic Violence Leave in Washington
Employees and their qualifying family members in Washington are entitled to paid time off, sick leave, and leave without pay due to being victims of domestic violence, sexual assault, or stalking. Now you’re up to speed on the numerous Washington payroll taxes and paycheck rules. If you’re still in need of help, reach out to a qualified accountant.