The Hidden Tax Hike Coming for Every Washington Employer

Joe Fain, President & CEO  |  April 25, 2026

Every legislative session, Washington’s general fund budget consumes the headlines. But the state runs several parallel budgets. These dedicated, self-financing programs with their own trust funds and premium structures assessed on employers and workers. Among them:

• Unemployment Insurance (UI), funded entirely by employer payroll taxes;
• Paid Family & Medical Leave (PFML), split between employers and employees;
• Workers’ Compensation, a program facilitated by Washington State Labor & Industries in which virtually every employer must participate (one of only four states where the state holds a monopoly);
• WA Cares Fund, the nation’s first public long-term care insurance program.

None of these appear as line items in the general fund. All of them affect the cost of doing business in Washington. Several of these programs are facing funding shortfalls, chief among them is state Unemployment Insurance.

A Quiet Alarm in the Trust Fund

Last week, the Washington Employment Security Department released its March 2026 UI Trust Fund Forecast. The numbers are alarming. The average employer UI tax rate is projected to jump 37% over the next three years. A quarter of the increase will occur in just the next year.

The driver is a solvency surcharge. Under state law, when the UI trust fund falls below a threshold in which it is unable to pay out more than seven months of benefits as of September 30 of any year, The Employment Security Division must impose an additional tax of no more than 0.2%, on all employers. As of March 31, 2026, the fund held approximately $3.5 billion, slightly below the seven-month trigger. The solvency tax will be imposed for 2027, 2028, and 2029, one additional year than the state projected last November.

Most concerning, however, is benefit payouts are running well above contributions. ESD projects payouts worth over $2.4 billion in 2026 against less than $1.8 billion collected from employers.

Changing Behavior, Not Higher Unemployment

The most important finding in the forecast: the rate increases are not (yet) being driven by rising unemployment. ESD’s is assuming flat unemployment through 2029.

Instead, ESD finds a dramatic change to how unemployment is being used. Data shows that in the five years before the pandemic, only 27% of eligible unemployed workers actually claimed benefit. This is known as the “recipiency rate.” By 2024, that number had increased to 32%. At the same time, the share of recipients who use their entire 26-week benefit has risen dramatically. More people claiming, and claiming longer, means total “weeks paid,” the core cost driver, is running well above what models predicted at this level of unemployment.

What’s Driving the Shift?

Washington’s legislature has steadily expanded UI’s scope and the generosity of benefits.

Higher maximum weekly benefits. Washington’s maximum weekly benefit is set by statute at 63% of the state average weekly wage. As wages have risen in one of the nation’s highest-wage states, benefits have followed.

The weekly benefit cap has risen from $929/week in 2023 to $1,152 for claims paid since July of last year. That puts Washington at the top of the list, along with Massachusetts, as having the most generous maximum benefit in the nation. To put it in perspective, the Washington cap is over 2.5 times more generous than California.

Striking workers. Governor Ferguson signed Senate Bill 5041 last May, making Washington only the third state in the nation, after New York and New Jersey, to extend UI benefits to striking or locked-out workers. Striking workers can now receive up to six weeks of benefits, beginning two to three weeks after a qualifying strike starts. The law runs through December 31, 2035.

COVID-era rate suppression. The legislature passed several pieces of legislation during the pandemic to shield employers from both rate experience charges (the portion of the UI tax an employer pays that is individually tailored to that employers history of terminated employees drawing benefits from the program) and the use of federal rescue funds to offset benefit charges and the implementation of the solvency surcharge, which would have been triggered as unemployment shot up. These interventions, while temporarily beneficial, masked the underlying trajectory of costs and made the fund appear healthier than it was.

The Wage Base: Washington’s Big Difference

Washington employers pay UI taxes on the highest taxable wage base in the nation: $78,200 per employee in 2026. The next-highest state in 2025 was Hawaii at $62,000. The wage base is the maximum amount of an employee’s income subject to the UI tax. The high wage base accounts for Washington’s comparatively low tax rate. But that rate hides a dramatic difference in the individual cost to each employer.

Sources: Outbooks, Experian Employer Services, state UI agencies — 2026 data. Rates shown are new-employer benchmarks; experienced-employer rates vary.

Washington’s per-employee cost for unemployment insurance averages between four and six times higher than most Sun Belt comparison states.

The Tax Foundation’s 2026 State Tax Competitiveness Index specifically cited Washington’s “high UI taxes and uncompetitive UI tax structure” as a contributor to the state’s poor business tax ranking.

Who Sets the Assumptions — and Are They Conservative Enough?

Like Washington’s general fund, The UI trust fund model draws its economic inputs from the state’s Economic and Revenue Forecast Council, an independent state body that publishes quarterly projections for unemployment rates, employment growth, and wages. ESD layers behavioral assumptions about recipiency rates and exhaustion (the degree to which recipients use all their available benefits before finding a new job) rates on top of those inputs.

The March 2026 forecast holds ERFC’s unemployment projection essentially flat. This raises a legitimate question: are even the updated assumptions conservative enough?

The pressing concern is whether assuming merely flat levels of unemployment adequately predicts several economic factors that are quickly emerging. Most notably is Artificial Intelligence, tech workforce restructuring, and a business climate that the Tax Foundation now ranks as the third worst in the nation.

Even ESD’s report acknowledges the uncertainty in its November 2025 forecast, stating:

“Uncertainties are growing in current and future years. Elements such as economic volatility, shifts in labor market dynamics, technological disruptions, and evolving policy landscapes are not predictable.” — Washington Employment Security Department, November 2025 Forecast

A Bright Note Worth Mentioning

Washington's system costs more, but at least it's built on solid ground. Many states, including California, have repeatedly borrowed from the federal government when their unemployment funds ran dry. When they don't pay that money back fast enough, the federal government penalizes their employers with higher tax bills on top of what they already owe the state. California has triggered these penalties multiple times, including after the pandemic. As a result, California companies pay a little less but for significantly inferior benefits for workers.

Washington has never gone down that road. Employers here pay more upfront, and while recent increases have been significant, the fund stays healthy and there are no surprise federal penalties piling on when times get tough. That’s not nothing.

The Bottom Line

The dollar figures involved aren't cataclysmic at first glance, but for some industries they could be existential. King County's unemployment rate is currently fourth highest in the nation among counties with one million or more residents. The forecast driving these tax increases assumes conditions stay essentially flat. That could be wishful thinking.

Against that backdrop, consider a typical small Bellevue restaurant — $1.1 million in annual revenue, 20 employees, and averaging 1.5% profit margins. That margin produces roughly $16,500 in annual profit. The combined UI and PFML increases between 2026 and 2028 will consume nearly one-third of it.

Washington's workers and businesses deserve a UI system built on honest math, conservative assumptions, and a legislature willing to ask hard questions before expanding an already generous program. The March 2026 forecast is a clear signal. It deserves a serious response.