Seattle Shield B&O Tax Changes

Beginning January 1, 2026, the following changes to the Seattle B&O tax will take effect: 

A. The B&O tax liability threshold will increase from $100,000 to $2 million.

B. The city’s B&O tax will include a $2 million standard deduction available to all businesses.

C. B&O tax rates for all classifications will increase to compensate for the revenue reduction resulting from the increase to the B&O tax threshold, the imposition of the $2 million standard deduction, and will generate additional revenue to provide funding to sustain city services.

D. The Seattle B&O tax will include credits available to comprehensive cancer centers and pediatric hospitals.

The Seattle B&O tax changes become effective January 1, 2026. 

For taxpayers who file quarterly, their first quarter B&O tax return of 2026 will be due April 30, 2026. For taxpayers on an annual filing frequency, their 2026 annual B&O return will be due April 30, 2027.  

Due to the taxable threshold increasing to $2 million in 2026, some taxpayers who file quarterly will be notified in early 2026 that their Seattle B&O tax filing frequency will change to an annual return starting with the 2026 calendar year.

Yes. Even if a business is under the $2 million threshold for calendar years after December 31, 2025, they are still required to complete and file their Seattle B&O tax returns.

Beginning January 1, 2026, the B&O taxable threshold is increasing from $100,000 to $2 million. A taxable threshold means the minimum amount of taxable revenue in a calendar year a business must have to be subject to the tax. A business that has taxable revenue that is less than the threshold for the calendar year owes no tax. 

The standard deduction is a B&O tax deduction available to all taxpayers that have annual taxable revenue of $2 million or more.

The $2 million threshold and the $2 million standard deduction are two separate and distinct concepts. Businesses will first need to determine if they are under the $2 million threshold. If a business is under the $2 million threshold no tax is due and the standard deduction is not applicable. 

To determine if a business is under or over the threshold, the business will report their gross income in Seattle and subtract all available deductions other than the standard deduction to arrive at their taxable revenue. If the taxable revenue is under $2 million, no tax is due. However, businesses under the threshold will still need to file their return to report $0 tax is due.

Businesses with taxable revenue of $2 million or more will be over the threshold and will be able to deduct up to $2 million of standard deduction per calendar year from their taxable revenue to arrive at their taxable amount. 

The standard deduction will first be applied to the taxable revenue reported under the classification with the highest tax rate. If any standard deduction balance amount is remaining, then it will be applied to the taxable revenue reported under the classification with the lower tax rate. 

The maximum standard deduction allowed for a calendar year is $2 million. The business on a quarterly filing frequency shall apply the standard deduction toward taxable revenue commencing with the earliest quarter in the calendar year that the taxpayer had taxable revenue until the $2 million standard deduction amount is reached.

No. The business must apply their standard deduction to taxable revenue generated in the current tax year. 

Yes. Businesses still need to renew their annual business licenses. The changes to the B&O tax from Seattle Shield Proposition 2 that take effect on January 1, 2026 do not change the business license fee calculation and requirements.

Effective January 1, 2026, comprehensive cancer centers will be allowed a B&O tax credit against their Seattle B&O taxes.

A “comprehensive cancer center” is a cancer center that has written confirmation that it is recognized by the National Cancer Institute as a comprehensive cancer center and that qualifies as an exempt organization under 26 U.S.C. Sec. 501(c)(3) as existing on July 1, 2006.

Effective January 1, 2026, pediatric hospitals will be allowed a credit against their Seattle B&O taxes.

A pediatric hospital is a hospital subject to the City’s B&O tax that is nonprofit and specializes primarily in providing clinically appropriate health care for the special needs of patients up to 18 years of age and young adults whose care and diagnosis is best treated with pediatric expertise. 

You may view the text of the Seattle B&O tax changes by downloading a copy of the ordinances on our website or by clicking the link on the City of Seattle business-taxes web page.

You may contact License and Tax Administration by phone at (206) 684-8484 or by email to tax@seattle.gov.