OLYMPIA – During the 2022 legislative session, legislators passed a bill that provides tax relief to employers in Washington.
Senate Bill 5873 (SB 5873), sponsored by Sen. Karen Keiser (D-Des Moines), reduces social tax rates for employers in 2022 and 2023. It also reduces the 2023 social tax rates for employers who report 10 or fewer employees for fourth quarter 2021.
As a result of this change, the Employment Security Department will recalculate employer tax rates for 2022.
”The bill provides substantial and immediate tax relief to Washington employers, including many small businesses who have been through so much due to COVID-19,” said Employment Security Department Commissioner Cami Feek.
How SB 5873 works
Most employers will see a reduction in their tax rates in 2022 and 2023.
- For 2022, most employers will see a reduction in their social cost factor rate from 0.75% to 0.5%. Your social tax rate could vary based on your rate class.
- For 2023, the flat social cost factor rate will cap at 0.7% instead of 0.8%.
The social cost factor rate is the baseline social tax rate for all employers. This rate will go up or down depending on an employer’s rate class. See more about rate classes below.
With this bill, employers will see a reduction in their social tax since the baseline social tax rate is lower.
Small employers get a lower social rate
SB 5873 also gives many small employers with 10 or fewer employees in fourth quarter 2021 more relief on their social tax rate in 2023.
- Employers in rate classes 8 to 40 will get the social tax rate for rate class 7.
- Employers in rate classes 1 to 7 will stay at their social tax rate.
For example, if the flat social cost factor in 2023 is 0.7%, a small employer in rate class 25 will pay a social tax rate of 0.45% instead of 0.84%.
Minimal impact on unemployment insurance trust fund
ESD predicts tax rate reductions from SB 5873 will have only minor effects on the unemployment insurance trust fund.
The trust fund is projected to remain solvent, even with these tax reductions.
About social tax rates
Social tax, or shared-cost tax, is one of two components of state unemployment taxes. Social tax is based on costs from the previous year that can’t be attributed to a specific employer.
The other component is an experience-rating tax based on an average of the employer’s layoff history over the past four fiscal years.
About rate classes
Washington’s unemployment program is an experience-based system. In general, employer tax rates depend on how much their former workers collect in unemployment benefits and the size of their payroll.
Employers whose employees claim more benefits in relation to their payroll will be assigned a higher rate class, which means their experience-rating tax and social tax will be higher. There are 40 rate classes in total, with employers in rate class 1 paying the lowest possible rate and employers in rate class 40 paying the highest possible rate.
Other tax relief for employers
Gov. Inslee signed SB 5873 on March 14, but previous legislation provided additional unemployment insurance tax relief for eligible employers in 2022.
For more information about unemployment taxes, go to esd.wa.gov/employer-taxes.