Filed under: Private Business, Seattle Tax, State Local & Multistate Tax
May 13, 2025
Seattle has a variety of social projects supported by the city, but these projects require more funding than the city can accommodate with its current budget. As a solution to the homelessness crisis, Proposition 1A (Prop 1A) was introduced in February 2023 with a goal to provide funding for social housing in Seattle. Prop 1A expands upon the existing Seattle payroll expense tax with what has been separately labeled as the Seattle social housing tax, where the tax proceeds support the Social Housing Developer.
What is the Prop 1A (Social Housing) Tax?
Prop 1A imposes a tax on payroll expenses for employers doing business in Seattle. The 5% tax applies on business with compensation to individual employees over $1 million annually. Unlike the existing Seattle payroll expense tax, total Seattle compensation paid by the employer does not affect the tax liability of the business. As a result, some taxpayers that do not have a liability for the Seattle payroll expense tax may be subject to the new social housing tax.
Seattle compensation is determined using the same methods prescribed under the Seattle payroll tax. Those methods include the antecedent hours method or the primary assigned method. The tax is reported on a separate return filed with the city, which is due quarterly for most taxpayers.
The Voting Process
Prop 1A was voted on in the February 11 special election. There were two options voters could vote for: Prop 1A, a 5% excess income tax, or Prop 1B, which would allocate $10 million from the existing Seattle Payroll Tax funds to the social housing initiatives for the next five years.
While both options aim to provide funding to social housing initiatives, there are some key differences.
| Proposition 1A (Passed) | Proposition 1B (Not Passed) | ||
|---|---|---|---|
| Estimated $50 million toward social housing generated | Set $10 million allocated toward social housing | ||
| Ongoing tax for continuous funding | 5-year timeframe | ||
| Funding goes directly to the Social Housing Developer to develop, own, and maintain social housing | The Social Housing Developer would apply for funding based on criteria determined by the city | ||
| New tax rate would be in addition to the existing payroll expense tax | Funding would be allocated from the existing payroll expense tax revenues |
The Outcome
Prop 1A was successfully approved by vote in the special election, and the new tax is expected to allocate an estimated $50 million per year to the social housing program. The Social Housing Developer will be using these funds to create permanent mixed low- and middle-income housing in Seattle.
The new Prop 1A tax rate will go into effect for the 2025 tax cycle. If you have questions about how this tax will affect you and your organization, contact us today.
© Clark Nuber P.S., 2025. All rights reserved.
