iThis provision, contained in DC Chairman Phil Mendelson’s Amendment in the Nature of a Substitute to DC Mayor Muriel Bowser’s proposed budget, joins other prominent revenue raisers included by the chairman, such as an increase in residential property taxes for homes valued over $2.5 million. Previously, the program mandated that payroll taxes paid by employers cover the cost of providing paid family leave to employees working in the District. Now, under the changes made by the Council, and for the first time in the program’s history, a portion of the money collected from employers to fund the program is no longer being allocated directly to financing the benefits granted by the program.
Mayor Bowser’s initial proposed budget provided an increase in payroll taxes from 0.26% to 0.62% of wages paid to employees by for-profit and nonprofit businesses in the District. Subsequently, the Council’s revised budget increased the amount from 0.62% to 0.75%, generating an estimated $76.1 million in revenue in FY25. Rather than depositing this increase into the Universal Paid Leave Fund for future program expenses, the Council’s revised budget would redirect this money into the District’s General Fund to be spent on other, unrelated programs. This would mark the first time since the passage of the Universal Paid Leave law in 2016 that program payroll taxes would be used for purposes other than paid leave.
The payroll tax changes could be meaningful for some DC employers. The increase from 0.26% to 0.75% will require every employer in the District of Columbia to pay an additional 0.49% in payroll taxes to the general fund. In practical terms, this means employers will be required to pay an additional $49 on every $10,000 in wages paid to employees in the District. While this payroll tax increase applies to both for-profit and nonprofit organizations, it will have a disproportionate impact on smaller nonprofits in the District that are already struggling to budget for the increasingly inflated cost of living.
Mayor Bowser has indicated that she does not support this additional tax on businesses. In a letter to the Council prior to the vote, she said, “I remain greatly concerned that taken as a whole, the council’s proposed budget and fiscal policy sets up our residents and businesses for even larger cuts to services and programs or additional tax hikes next year.” The mayor has not yet indicated whether she will sign or veto the budget or simply allow it to become law after it reaches her desk. The Council passed the budget unanimously, signaling that a mayoral veto likely would be overridden.
