You may have heard about the new Seattle Income tax of 2.25%. If you are wondering what the tax means for you, here are answers to some common questions about the tax:
Who will be required to pay the income tax?
The tax only applies to Seattle residents. Additionally, only married couples earning more than $500,000 per year and single individuals earning more than $250,000 per year will be required to pay the tax. These amounts have been indexed for inflation and will increase each year.
What is the income tax rate?
The tax is a 2.25% tax on income. However, the tax only applies to income above the $500,000 or $250,000 limits. This means if you are single and earn $300,000 in one year you only pay tax on $50,000 ($300,000 minus $250,000). This means a single individual earning $300,000 will pay $1,125 to Seattle for income taxes. The income taxes you pay to Seattle will be in addition to federal income taxes.
When does the income tax start?
The income tax goes into effect on January 1, 2018. This means income earned in 2018 will be subject to the tax. The first tax returns will be due to Seattle by April 15, 2019 to report the 2018 income.
Will the Income Tax be Challenged in Court?
Although the tax has passed the Seattle City council, it is very likely that the tax will be challenged in court soon. Washington’s constitution and case law create significant legal problems for the Seattle income tax that may result in either a delay of its implementation or possibly the removal of the law.
What steps can I take to avoid or reduce my Seattle Income Taxes?
Although the tax is not in effect until 2018, here are a few options to consider for reducing your tax liability:
- Move outside Seattle. The tax only applies to Seattle Residents. If you live outside the Seattle city limits, even if you work in Seattle, you will not pay the income tax.
- Increase contributions to your 401k to reduce your total taxable income. The tax applies to “total income” which does not include 401k contributions.
- Discuss whether your employer can provide non-taxable benefits that will lower your income but provide a benefit to you.
Seattle Income Tax Fact Chart
|Who Pays Tax:||Seattle residents only|
|Start Date:||January 1, 2018|
|First Returns Due:||April 15, 2019|
|Tax Rate Single:||2.25% on income exceeding $250,000|
|Tax Rate Married:||2.25% on income exceeding $500,000|