WA State Self-Employment Tax & The B&O Tax

If you are self-employed in Washington, you might be looking for information on a state-level self-employment tax. Washington does not have a self-employment tax that mirrors the federal tax for Social Security and Medicare. Instead, the state’s primary tax on business activity, which applies to most self-employed individuals, is the Business and Occupation (B&O) tax. The B&O tax is a gross receipts tax, calculated on your total business income without deductions for expenses. Beyond the state B&O tax, you may also encounter optional state insurance programs, and many cities impose their own local business taxes.

Understanding Washington’s Business and Occupation (B&O) Tax

The Business and Occupation (B&O) tax is a gross receipts tax levied by Washington State on businesses for the privilege of operating in the state. Unlike an income tax, the B&O tax is calculated on the total revenue a business generates, without deductions for costs of doing business such as labor or materials. This tax applies to nearly all forms of business, including sole proprietorships, partnerships, and LLCs, making it a direct consideration for most self-employed individuals.

A business is required to pay B&O tax if it has a “nexus,” or connection, with the state. This nexus can be established through physical presence, such as having an office or employees in Washington. An economic nexus is also created if a business’s sales into the state exceed a threshold of $125,000, meaning out-of-state individuals may be subject to the tax.

The Department of Revenue categorizes business activities into different classifications, each with its own tax rate. For self-employed individuals, the most common classifications are “Service and Other Activities,” “Retailing,” and “Wholesaling.” The “Service and Other Activities” classification includes most professional and personal services. Its tax rate is 1.5%; however, the rate increases to 1.75% for businesses with gross receipts over $1 million. As of October 1, 2025, the rate for businesses with gross income over $5 million will increase to 2.1%.

The “Retailing” classification applies to sales of goods and certain services to end consumers and has a tax rate of 0.471%. Businesses in this category must also collect retail sales tax from their customers. The “Wholesaling” classification covers sales to other businesses that will resell the goods and has a tax rate of 0.484%. It is possible for a single business to have activities that fall into multiple classifications. The rates for both Retailing and Wholesaling are scheduled to increase to 0.5% on January 1, 2027.

Calculating and Paying Your B&O Tax

The formula is your gross business income multiplied by the specific tax rate for your business classification. For instance, if your business falls under the “Service and Other Activities” classification with its 1.5% tax rate, and you have a gross income of $100,000, your B&O tax due would be $1,500.

While the B&O tax does not allow for deductions of business expenses, there are specific credits that can reduce your tax liability. One credit for many small businesses is the Small Business B&O Tax Credit. This credit is available to businesses with a B&O tax liability below a certain threshold and is calculated on a sliding scale, potentially eliminating the entire tax liability for businesses with lower gross incomes.

The Washington Department of Revenue assigns a filing frequency to each business, which can be monthly, quarterly, or annually, based on estimated annual income. Monthly returns are due on the 25th of the following month, while quarterly returns are due by the end of the month following the quarter’s close. Annual returns are due by January 31st of the following year.

To file and pay your B&O tax, you must use the Department of Revenue’s online portal, My DOR. The state requires electronic filing and no longer accepts paper forms for tax returns.

Optional State Programs for the Self-Employed

Beyond the mandatory B&O tax, Washington offers optional insurance programs that self-employed individuals can choose to participate in. These programs provide benefits typically available to traditional employees.

One such program is the WA Cares Fund, a state-run long-term care insurance program. The premium for the WA Cares Fund is 0.58% of gross wages for employees. For self-employed individuals who choose to opt-in, the premium is based on their net earnings. Once you opt in, the commitment is generally permanent until you retire or are no longer self-employed.

Another voluntary program is the Paid Family and Medical Leave (PFML). This program provides paid time off for events such as the birth of a child, a serious personal medical condition, or caring for a family member with a serious health issue. To receive benefits, you must opt-in and agree to pay the required premiums for an initial three-year period. After the initial term, participation can be renewed annually.

Local and City-Level Business Taxes

In addition to the statewide B&O tax, many cities and towns in Washington impose their own local B&O taxes. These local taxes have their own set of rules, including different registration requirements, tax thresholds, and rates. Cities like Seattle, Bellevue, and Tacoma have their own B&O tax structures, and the list of cities with such taxes is extensive.

To determine if your business is subject to a local B&O tax, you will need to check with the finance department of the city where your business is located or conducts activities. The Washington Department of Revenue’s website also provides resources and links to help businesses identify local tax obligations. Some cities have partnered with the Department of Revenue’s Business Licensing Service or the FileLocal portal to streamline the process of registering and paying local taxes.