The Seattle City Council addressed some of the finer points of its draft income tax legislation during Wednesday’s Affordable Housing, Neighborhoods & Finance Committee meeting.

Under the proposed city income tax on Seattle’s highest earners, individuals making more than $250,000 annually would pay a 2 percent tax on their income, as would couples making more than $500,000 and filing jointly.

Council central staffer Erik Sund said a group of budget analysts and economists have been exploring IRS data for Seattle. According to 2014 data, just 2 percent of filers would be affected.

“Those data are out of date, being three years old, so it would probably be higher than that,” Sund said, “but it’s anticipated that it would probably be fewer than 5 percent of filers.”

The household area median income in Seattle was $80,000 in 2015, Sund said. Under the tax, income would include wages, salaries and investment earnings.

If the city council makes its set deadline to pass the income tax by July 10, it would be applied after Jan. 1, 2018, with the first payment due in April 2019. The city anticipates it will collect $125 million during the first year of collections.

Changes made since the public weighed in on the legislation on June 14 include clarifying adjustments for inflation and putting in a provision for an automatic six-month tax extension, if a filer is granted one by the IRS for federal tax payments. The city’s finance director would also be tasked with estimating the tax when a filer doesn’t provide their own records.

Kent Meyer with the city attorney’s office confirmed the amount of income tax a Seattle resident pays to the city can be deducted from their owed federal income tax.

The June 21 committee meeting primarily focused on the finer rule-making process that would follow adoption of a city income tax, and what penalties would be imposed on those that don’t pay, pay late, underpay and attempt to commit fraud.

Meyer said rule making would be similar to the process used for the city’s business and occupation (B&O) tax.

The penalty for filers that underpay would be 1 percent of the unpaid tax for each month of delinquency, not to exceed 25 percent. A $250 penalty would be imposed on residents that fail to file, but that can be waived if corrected within 30 days, Meyer said. If it is determined the failure was intentional, the penalty would increase to $500.

Seattle City Councilmember Lisa Herbold asked how the legislation would address nonresident spouses.

Greg Wong, partner at Pacifica Law Group, said a filer could include their nonresident spouse in their total income if they choose.

“They can also elect to not include that nonresident spouse’s income for purposes of assessing whether they meet the threshold of that tax,” Wong said, “but then they need to show FAS (Finance and Administrative Services) how it is that they are apportioning income between the resident spouse and the nonresident spouse.”

Councilmember Kshama Sawant cited a post by local blog site SCC Insight during the meeting, which referred to the proposed tax as “draconian.”

“I don’t think it is draconian, but I just wanted to hear your thoughts on that,” she said.

Meyer said the tax is comparable to ones in other cities outside Washington. The state requires penalty provisions for its B&O tax, he said, which is the same used by the city.

“In some instances, it’s less draconian,” he said.

Sawant said she assumes people that would be affected by the city income tax are those that have accountants and tax attorneys.

“I think that, in light of all of that, it seems fairly reasonable,” she said. “I think that the experience of regular people paying penalties on unpaid parking tickets is something we can think of as somewhat draconian.”

Should the income tax be adopted, the city will need to establish a process for filing and tracking taxpayer accounts, said city finance director Glen Lee.

“That in itself is a chore, and will be a large upfront cost in order to have the software available to process the nuance of income tax,” he said. “We don’t have anything like that in the city.”

The data system and required security must be in place before the city can enter into an agreement with the IRS to receive data to determine which residents would be required to pay the tax. Lee said the city of Portland has such an agreement.

Councilmember Tim Burgess said there was a 50 percent chance of the legislation coming before the committee again before adoption is considered. He also said some of the rules for the tax could be fine-tuned after it is challenged.

Initiative 69 was passed in 1932 by 70 percent of voters, and had included a net income tax on corporations. However, the state Supreme Court overturned I-69 in a 5-4 decision shortly after, determining income is a form of property. Therefore, all taxes must be levied equally.

“Some have characterized the overcoming of the legal and political challenges of this ordinance as moon shots, let’s be frank,” said Michael Tamayo, vice president of the Seattle Education Association, later adding he knows the fight doesn’t end with passage of the legislation. “We’ll be with you every step of the way.”

Plum Bistro owner Makini Howell said after opening her restaurant in Capitol Hill back in 2009 that she noticed her staff couldn’t afford to live there.

“People in Seattle who are not making six figures can no longer afford to live where they work,” she said. “That’s why I think this tax is so important. It’s a crucial point in deciding what kind of city we want to live in, and I want to support the city that has supported me.”

The Affordable Housing, Neighborhoods & Finance Committee will hold a special meeting to review and possibly vote on the legislation at 1 p.m. Friday, June 30, in council chambers at city hall, 600 Fourth Ave.