Legislation may affect your employer taxes
Legislation often affects employer taxes. The following bills may affect how much employers pay.
During the 2022 legislative session, legislators passed a bill that provides tax relief to employers in Washington.
ESSB 5873 reduces the unemployment social tax rate for most 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.
On Feb. 8, 2021, Gov. Inslee signed ESSB 5061. This bill provides unemployment tax relief for Washington businesses, enhances unemployment support for Washington workers and more. These measures enhanced the state’s ability to respond to the economic impact of the COVID-19 pandemic.
The state Legislature also passed ESSB 5478 in 2021. This bill provided $500 million in additional financial relief to taxable employers for offsetting benefit charges from COVID-19 related claims. The offset will result in lower tax rates for many employers who were projected to have the largest tax increases.
These employers will see relief on their 2022 tax rate notice. The notice will show the forgiveness ratio, as well as any reduced benefit charges.
Tax rate recalculation notice sent to employers (March 2022)
Tax rate recalculation notice sent to employers (May 2022)
What this bill provides
New legislation provides unemployment tax relief to employer
SB 5873 reduces the unemployment social tax rate for most 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.
The bill also adjusted tax rates for some employers whose industry-weighted tax rate was above 0.6.
As a result of these changes, the Employment Security Department recalculated employer tax rates for 2022.
How do I know if I received financial relief?
You can review your tax rate on your tax rate notice, which reflects your reduced unemployment insurance social tax rate. Employers in our highest rate classes may not see their total tax rate change.
How SB 5873 works
Most employers will see a reduction in their tax rates in 2022 and 2023.
- For 2022, the Legislature lowered the flat social cost factor rate from 0.75% to 0.5%. This will lower the social tax for most employers, but the actual amount of tax relief will depend on your rate class.
- For 2023, the flat social cost factor rate will cap at 0.7% instead of 0.8%.
Small employers get a lower social tax 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%.
The bill also adjusted tax rates for some employers whose industry-weighted tax rate was above 0.6. This change could lower tax rates for these employers.
What this bill provides
State UI tax relief
ESD projects the bill to prevent nearly $1.5 billion in tax increases in 2021 and 2022 with approximately $1.7 billion in tax savings for employers over the 2021-2025 period.
- Under the bill, the average 2021 unemployment tax rate was 1.36%, a 20% tax cut from what ESD projected without the legislation. The average 2022 unemployment tax rate is projected to be 1.45%, a 37% tax cut from what it was projected without the legislation.
- The bill provided over $1.2 billion in relief of benefit charges for all employers for benefits paid to employees from March 22 to May 30, 2020, during the “Stay Home, Stay Healthy” order.
- Without the bill, the flat social tax would have been 1.22% of taxable wages in 2021 and 1.13% of taxable wages in 2022. The bill reduced the flat social tax cap from 1.22% to .50% in 2021. It will reduce the cap to .75% in 2022 before increasing it annually until it reaches .90% in 2025.
- The bill suspends the solvency tax through 2025. The solvency tax can be as much as .20% of taxable wages per year. This happens if the Unemployment Insurance trust fund does not have enough reserves on Sept. 30 of any given year to pay seven months of benefits. With the solvency tax freeze, employers did not pay that tax in 2021 and will not pay it in 2022, resulting in $446 million in tax savings.
Increased UI minimum weekly benefit amount
- The bill increased the weekly minimum benefit amount from 15% of the average weekly wage to 20% of the average weekly wage beginning July 1, 2021.
- The minimum benefit amount increased from $201 to $295 in July 2021.
- Under the bill, Washington will maintain the highest minimum weekly benefit amount in the nation.
- Starting in January 2022, the minimum weekly benefit amount can’t be higher than the average weekly wage a person earned while they were still employed.
Voluntary Contributions Program enhancement
How your business may benefit:
- You no longer need to pay the 10% surcharge fee that we normally charge to use the program.
- The program is open to employers who are moving eight rate classes or more rather than 12 or more.
- Employers can buy down a minimum of two rate classes instead of four.
- Learn more on the Voluntary Contribution Program webpage.
In 1995, Washington adopted a “voluntary contribution” provision in state law explicitly for helping small businesses seeing large increases in their experience rate.
In the first quarter each year, we mail (by U.S. Postal Service) a program notice and application to eligible employers. To be eligible, employers:
- Must be taxable.
- Must not be a local government.
- Cannot currently have a delinquent tax rate.
- Must have an account rate class increasing by at least 12 (eight for 2021-2025) rate classes from the previous calendar year’s tax rate run.
Unemployment benefits for people at higher risk of becoming seriously ill from COVID-19
- The bill allows people who are either at a higher risk of becoming seriously ill from COVID-19 — or who live with people who at a higher risk — to voluntarily quit their job with good cause. To qualify, these people cannot work from home for that employer but are otherwise able and available to work from home for other employers. ESD won’t charge employers for the benefits people in this situation receive.
- The bill allows ESD to consider people at a higher risk for becoming seriously ill from COVID-19, and those who live with people at a higher risk, available for work if they can work from home.
- The bill required ESD to account for any potential health risks to people at a higher risk for becoming seriously ill from COVID-19 living with the claimants. This would happen when ESD determines whether work is “suitable” for claimants.
Public health emergency benefit charge relief
- The bill amends state law. ESD can relieve benefit charges in some instances for employers that must close or curtail operations. This happens when the resulting layoffs are due to a dangerous, contagious, or infectious disease that’s the subject of a public health emergency. This can be at the employer’s plant, building, worksite or other facility. For example, if an employee or customer comes to an employer’s office space while infected with COVID-19, the employer can close the space to disinfect the area. They can also take other safety precautions without fear of ESD charging for unemployment benefits.
Eliminate lump sum retirement benefit deductions
- The bill amended state law, so ESD no longer requires lump sum retirement payments be deducted from a person’s weekly unemployment check.
Emergency waiting week waiver
- The bill amended state law to waive the waiting week and not charge those benefits to employers when the federal government fully finances them. This change will allow claimants to receive unemployment benefits sooner and provide employers one less week of benefit charges during economic crises
- The bill amended state law so that ESD does not charge SharedWork benefits to employers when the federal government fully finances them.
- The federal government fully financed SharedWork benefits through the week ending Sept 4, 2021.
- SharedWork: The bill amended state statute so employers must have at least two employees enrolled in the SharedWork program to take part. State statute previously required one. The bill also states that employees in the SharedWork program can participate in approved training. The U.S. Department of Labor (USDOL) identified conformity issues with the current state statute.
- Trade Adjustment Assistance: The bill made minor technical corrections to state statute related to TAA training. The correction reflected new federal rules.
What this bill provides
- Category 1 - Small businesses (20 or fewer employees) most directly affected by the pandemic whose 2022 tax rates were projected to jump three or more rate classes.
- Category 2 - Larger businesses most directly affected by the pandemic whose 2022 tax rates were projected to jump three or more rate classes.
- Category 3 - All other small business (20 or fewer employees) with projected jumps of four or more rate classes.
- Category 4 - All other larger businesses with projected jumps of four or more rate classes.
SB 5478 provided relief only to taxable employers whose tax rates were projected to increase at least three or four rate classes from 2021 to 2022.
Employers who were past due with their quarterly tax payment were eligible because we could still calculate their tax rate.
Who’s not eligible
Since reimbursable employers do not have tax rates, they were not eligible for relief in this bill.
Employers who were past due with their quarterly tax report were not eligible for financial relief from SB 5478 because we did not have the information we needed to accurately calculate their tax rate.
How much relief eligible employers received
The legislature’s goal was to minimize rate increases for businesses who were projected to see the biggest tax hikes. The legislation provided $500 million in benefit charge relief and kept 2022 rates much lower for those businesses.
- Categories 1 and 2 will get the highest rate of relief. These categories include over 11,000 employers.
- Category 1 employers will see an average increase of two rate classes instead of 13.
- Category 2 employers will see an average increase of four rate classes instead of 10.
- Categories 3 and 4 will get a lower rate of relief. These categories include over 26,000 employers.
- Category 3 employers will see an average increase of 11 rate classes instead of 14.
- Category 4 employers will see an average increase of six rate classes instead of seven.
If you have questions about your industry classification, consult the U.S. Bureau of Labor Statistics industry finder tool.
If you saw your tax rate increase
You still might see your 2022 tax rate increase. Two reasons:
- The legislature designed ESSB 5478 to reduce the amount of tax rate increases, not eliminate all tax rate increases.
- All employers saw an increase in the social tax, which is a shared-cost tax the legislature designed to allocate costs across all employers when those costs cannot be charged to a specific employer. In 2021, the legislature set the flat social tax at 0.50%. For 2022, the legislature set the flat social tax at 0.75%.
If you disagree with your tax rate calculation following financial relief from ESSB 5478, you can request a tax rate recalculation within 30 days of the tax rate notice. This is the same way you'd challenge any other tax rate.
If ESD denies your request, you can file an appeal within 30 days of the denial.
Category 1 and 2 employers
- Printing and related support activities
- Primary metal manufacturing
- Clothing and clothing accessories stores
- Sports, hobby, music instrument, bookstores
- Miscellaneous store retailers
- Air transportation
- Transit and ground passenger transportation
- Scenic and sightseeing transportation
- Motion picture and sound recording industries
- Performing arts and spectator sports
- Museums, historical sites, zoos and parks
- Amusements, gambling and recreation
- Food services and drinking places
- Personal and laundry services
- Private households
Category 3 and 4 employers
Employers in all other industries whose tax rate was originally supposed to increase by at least three tax-rate classes received some relief to reduce the amount of the increase.