Washington State Millionaires Tax: Everything You Need to Know in 2026

Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. Tax laws are complex and fact-specific. Consult a qualified tax professional or attorney for guidance specific to your situation.

For decades, the answer to "does Washington have an income tax?" was a simple, definitive no. That answer just changed.

On March 10, 2026, the Washington House of Representatives passed SB 6346 after a 24-hour marathon debate, sending a 9.9% tax on household income above $1 million to the Senate for concurrence on House amendments. Governor Bob Ferguson has pledged to sign it. If he does, Washington will become the latest state to impose a targeted income tax on its highest earners, and the first to do so while navigating a constitution that has historically prohibited exactly this kind of levy.

Whether you are a business owner, tech executive, high-earning professional, or someone simply trying to understand what this means for Washington's tax landscape, this guide covers every angle: who pays, how the tax is calculated, what is exempt, the constitutional battle ahead, and what you should be doing right now to prepare.

What Is the Washington Millionaires Tax?

SB 6346 (Senate sponsor: Jamie Pedersen) and its companion bill HB 2724 (House sponsor: Joe Fitzgibbon) establish a 9.9% tax on Washington taxable income exceeding $1 million per household. This is not a marginal rate that kicks in at various brackets. There is one rate and one threshold. If your Washington taxable income is below $1 million, you owe nothing. If it is above, the amount over $1 million is taxed at 9.9%.

For a state that has never had a broad-based income tax, this is a seismic shift. Washington has long relied on sales taxes, B&O (business and occupation) taxes, and property taxes to fund state government. That reliance has produced what the Institute on Taxation and Economic Policy ranks as one of the most regressive tax systems in the country: the bottom 20% of Washington households pay 13.8% of their income in state and local taxes, while the top 1% pay just 4.1%. Only Florida's system is more regressive.

Supporters frame SB 6346 as a long-overdue correction. Opponents see it as the first step toward a broader income tax that will eventually reach well below the millionaire threshold.

Both sides might be right. But regardless of where you fall on the policy, the practical question is the same: what does this mean for you?

Who Does the Washington Income Tax Apply To?

The tax targets Washington residents whose household income exceeds $1 million in a tax year. Here is how the key parameters work:

The $1 Million Threshold

The bill provides a $1 million standard deduction applied against Washington taxable income. This is a per-household figure, not per person. That distinction matters enormously for married couples and registered domestic partners.

If you are married or in a domestic partnership, you share the $1 million deduction. A couple where each spouse earns $600,000 has combined household income of $1.2 million. After the $1 million deduction, they owe 9.9% on $200,000, which is $19,800. A single filer earning $1.2 million owes the same amount.

Starting in 2030, the $1 million standard deduction adjusts annually for inflation.

Residency Rules

Residency is determined by two tests:

• Domicile test: You are domiciled in Washington if you maintain a permanent place of abode here and do not spend more than 30 days outside the state (this is a simplification; the full statutory test involves intent and physical presence factors)
• 183-day test: Non-domiciliaries who spend 183 or more days in Washington in a tax year are treated as residents

Nonresidents who earn Washington-source income above the threshold are also subject to the tax, but their standard deduction is prorated. The proration fraction uses Washington base income as the numerator and total federal AGI as the denominator.

Key Exemptions

Not all income counts. The following are excluded from Washington taxable income:

• Real estate sales. Gains from selling real property are exempt.
• Qualified family-owned businesses. Sales of businesses meeting the statutory definition are excluded.
• Certain retirement income. This includes public pensions and other qualifying retirement distributions.
• Federal disaster and working capital grants. These are carved out of the tax base.

The real estate exemption is particularly significant in a state where property values have surged. A homeowner selling a $3 million property at a $1.5 million gain would not owe this tax on that gain.

How the Washington Millionaires Tax Is Calculated

The calculation is more nuanced than "9.9% of everything over a million." Here is the step-by-step breakdown, drawn from the bill text and legal analysis:

Step 1: Start With Federal Adjusted Gross Income

Your federal AGI is the starting point. This is the same number that appears on line 11 of your federal Form 1040.

Step 2: Apply Add-Backs

Two items must be added back to your federal AGI:

• Non-business state and local taxes. If you deducted state and local taxes on your federal return that are not related to a business, you add them back.
• Federal pass-through deduction for state income taxes. If a pass-through entity paid state income taxes on your behalf and you claimed a federal deduction for it, that deduction is added back.

Step 3: Apply Subtractions

Two deductions reduce your taxable base:

• $1 million standard deduction. This is automatic. No itemization required. Married couples and domestic partners share this single deduction.
• Optional charitable deduction. Up to $100,000 in qualified charitable contributions can be deducted. This amount is inflation-indexed.

Step 4: Calculate the Tax

Multiply the remaining amount (your Washington taxable income) by 9.9%.

Step 5: Apply Credits

Three categories of credits reduce your tax liability:

• Taxes paid to other states. If you paid income tax to another state on the same income, you get a credit. This prevents double taxation for people with multi-state income.
• Washington capital gains tax. If you already paid Washington's 7% capital gains tax on qualifying gains, you receive a credit for that amount.
• B&O taxes. Business and occupation taxes paid to Washington also generate a credit.

All credits are nonrefundable and cannot be carried forward or back. If your credits exceed your tax liability in a given year, you lose the excess.

The Pass-Through Entity Election

For business owners operating through S corporations, partnerships, or LLCs, the pass-through entity (PTE) election is one of the most important provisions in SB 6346.

Here is how it works:

• The entity elects to pay the 9.9% tax at the entity level instead of passing income through to individual owners
• Individual owners receive a credit on their personal Washington returns for their proportionate share of the entity-level tax
• However, owners must add back the federal deduction they claimed for the entity-level tax payment

Why does this matter? The federal $10,000 SALT (state and local tax) deduction cap limits how much individuals can deduct in state taxes on their federal returns. By paying the tax at the entity level, the state tax becomes a business expense deductible against the entity's income, effectively bypassing the SALT cap. Many states with income taxes have adopted similar PTE elections since the 2017 Tax Cuts and Jobs Act imposed the SALT cap.

The mechanics get technical fast. If you own a pass-through entity with Washington income, this is a conversation to have with your CPA well before 2028.

When Does the Washington Income Tax Take Effect?

As of March 11, 2026, the timeline looks like this:

Date	Event
February 16, 2026	Senate passes SB 6346, 27-22 (3 Democrats joined all Republicans in opposition)
March 10, 2026	House passes amended version after 24-hour marathon debate (8 Democrats voted against; all Republicans opposed; 58-38 vote on party lines to reject a GOP procedural challenge)
Before March 12, 2026	Senate must concur on House amendments (session ends March 12)
After concurrence	Governor Ferguson signs into law (he has pledged to sign)
January 1, 2028	Tax takes effect on income earned on or after this date
2029	First tax returns filed and payments due
2030	$1 million standard deduction begins adjusting for inflation

The legislative session ends March 12, 2026. Senate concurrence is the final legislative step. Given the original Senate vote of 27-22 and the governor's public endorsement, concurrence is widely expected.

What the Revenue Funds

The estimated revenue of $3.5 to $3.7 billion annually is earmarked for a broad set of programs. This is not general fund money that disappears into the budget. The bill specifies where it goes:

Education and Early Learning

• K-12 education funding. A significant portion goes directly to public school funding.
• Fair Start for Kids Act. Expanded access to early childhood education and childcare programs.

Healthcare

• Expanded healthcare access for lower-income households.

Tax Relief for Everyone Else

This is the part that supporters emphasize and opponents tend to overlook:

• Working Families Tax Credit (WFTC) expansion. The state's version of the federal Earned Income Tax Credit gets a boost for lower-income households.
• Small business B&O exemption. Companies grossing under $300,000 per year are exempt from the B&O tax starting in 2029. This covers roughly 65% of all businesses in Washington.
• Sales tax on personal hygiene products eliminated. No more sales tax on soap, toothpaste, deodorant, and similar products.
• Two annual sales tax holidays. Proposed holidays on items under $1,000, returning an estimated $141 million annually to consumers.

The framing is deliberate: tax the top, cut taxes for everyone else. Whether that framing survives contact with the actual budget process is a separate question.

The Constitutional Question

This is where things get legally interesting, and it is the reason a court challenge is all but guaranteed.

The Historical Problem

In Culliton v. Chase (1933), the Washington Supreme Court ruled that income is property. Under the state constitution's uniformity clause, property must be taxed uniformly at a maximum rate of 1%. A graduated income tax, by definition, is not uniform. Result: for nearly a century, every attempt at a state income tax has run headfirst into this precedent.

Washington voters have rejected income tax measures at least 10 times at the ballot box. The constitutional barrier has been equally effective in the courts. Until recently.

The Capital Gains Precedent

In 2021, Washington enacted a 7% capital gains tax on gains exceeding $250,000 (now $270,000 after inflation adjustments). Opponents immediately challenged it as an unconstitutional income tax. In Quinn v. State (2023), the Washington Supreme Court upheld the tax by a 7-2 vote, ruling that it was an excise tax on the specific transaction of selling capital assets, not a property tax on income itself.

That distinction was everything. An excise tax is a tax on an activity or transaction. A property tax is a tax on what you own. The court said capital gains were taxed as a transaction (selling assets), not as property (the income itself).

The Key Question With SB 6346

SB 6346 uses almost identical legal framing. The bill defines the tax as a levy on the "receipt of income", treating the act of receiving income as a taxable event, just as the act of selling a capital asset is a taxable event under the capital gains law.

But there is a meaningful difference. The capital gains tax applies to a specific, identifiable transaction: you sell stock, you pay the tax on that sale. SB 6346 applies to aggregate annual income from all sources. It looks, walks, and quacks like a traditional income tax. Whether the court is willing to extend the "excise tax" theory from a transaction-specific levy to a comprehensive annual income calculation is the billion-dollar legal question.

Legal analysts are divided. The Quinn v. State majority was willing to take an expansive view of the excise tax definition. But the dissent in that case specifically warned that the majority's reasoning could be used to justify any income tax under the excise label. SB 6346 is essentially testing whether the dissent was right.

The Initiative 2111 Problem

There is an additional wrinkle. In 2024, the Washington Legislature codified Initiative 2111, which prohibits the state and any city or county from imposing a "tax on personal income."

SB 6346 deals with this directly by including a self-carve-out: the bill states that Initiative 2111's prohibition does not apply to this particular tax. Whether a legislature can exempt its own enactment from a previously enacted prohibition is yet another question for the courts.

What Happens Next

As of March 11, 2026, the path forward looks like this:

1. Senate concurrence. The Senate needs to approve the House amendments to SB 6346 before the session ends on March 12, 2026. This is expected to happen.
2. Governor's signature. Governor Ferguson has publicly endorsed the bill. Signature is expected shortly after concurrence.
3. Court challenge. Opponents will file suit almost immediately, likely arguing the tax violates the uniformity clause and conflicts with Initiative 2111. Expect the case to move quickly to the Washington Supreme Court.
4. Potential ballot repeal. Opponents may also pursue a ballot initiative to repeal the tax. Washington voters have historically been skeptical of income taxes, though recent polling shows 54% of Republicans, 52% of Independents, and 71% of Democrats support taxing millionaires. In 2024, 64% of voters upheld the capital gains tax in 32 of 39 counties.

The political landscape has shifted. The question is whether it has shifted enough to survive both judicial review and a potential ballot challenge.

Washington's Broader 2025-2026 Tax Overhaul

The millionaires tax is not happening in a vacuum. It is the latest piece of a sweeping tax overhaul that has already reshaped Washington's revenue system. Here is what was already signed into law in May 2025:

• B&O tax rate increases across multiple classifications
• New 0.5% B&O surcharge on businesses with Washington taxable income over $250 million
• Luxury vehicle tax: 8% on vehicles over $100,000
• Luxury aircraft tax: 10% on aircraft over $500,000
• Gas tax increase: 6 cents per gallon
• Estate tax increases: rates up to 35% on estates exceeding $9 million
• Rental car tax increase: raised to 11.9%
• Payment card processing B&O: new 3.1% rate
• Sales tax expansion: extended to new services including IT training and tech support

Taken together with the millionaires tax, Washington's total tax environment for high earners and large businesses looks dramatically different than it did two years ago. For anyone evaluating their state tax exposure, the full picture matters, not just any single tax.

How High Earners Should Start Planning Now

The January 1, 2028 effective date gives affected taxpayers a two-year runway. That is enough time to make meaningful structural changes. Here is what founders, executives, and high earners should be evaluating now:

Income Timing

If you have control over when income is recognized (stock option exercises, business sales, bonus deferrals, installment sales), consider whether accelerating income into 2026 or 2027 makes sense. Income recognized before January 1, 2028 is not subject to the tax. This is particularly relevant for:

• Founders considering a liquidity event
• Executives with large unvested stock option grants
• Business owners weighing a sale or partial exit

Entity Structuring

The pass-through entity election creates planning opportunities for business owners. Evaluate whether your current entity structure is optimal under the new rules. Key questions:

• Should your entity elect to pay at the entity level?
• Does the SALT cap workaround justify the add-back requirement?
• Are there restructuring opportunities that separate Washington-source income from other income?

Charitable Giving Strategy

The $100,000 charitable deduction is optional and inflation-indexed. For taxpayers who already give significantly, timing and structuring charitable gifts to maximize the Washington deduction could reduce their effective rate. Donor-advised funds, charitable remainder trusts, and bunching strategies all deserve a fresh look in light of this deduction.

Residency Considerations

Let's address this directly: some high earners will consider leaving Washington. The states most commonly considered are Florida, Texas, Nevada, Wyoming, South Dakota, and Tennessee, all of which have no state income tax.

If you are thinking about a residency change, here is what matters:

• Timing. You need to establish domicile in your new state before January 1, 2028 to avoid the first year of the tax.
• Documentation. Changing your mailing address is not enough. You need a legitimate residential address in your new state, updated driver's license, voter registration, vehicle registrations, bank accounts, and professional licenses. The more ties you establish, the stronger your position.
• The 183-day test. Even after changing domicile, spending 183 or more days in Washington could still make you a resident for tax purposes.
• Washington-source income. If you continue to earn income sourced to Washington (from a business operating here, for example), you may still owe the tax on that income as a nonresident.

Residency changes are one of the most audited areas of state tax law. If you are going to make a move, do it properly or do not do it at all. Half-measures create audit risk without any of the tax savings.

Your Tax Base helps high earners establish legitimate domicile in no-income-tax states. Our Florida residency plans include a real residential address (not a P.O. box), tax compliance monitoring, and access to licensed CPAs who specialize in state residency changes. If you are evaluating whether a domicile change makes sense in light of Washington's new tax landscape, plans start at $55/month.

QSBS and Startup Founders

A note for founders: gains on qualified small business stock (QSBS) are 100% exempt from federal capital gains tax after a five-year hold (IRC Section 1202). This exemption carries through under Washington's existing capital gains law and would presumably remain untouched under the millionaires tax framework, since capital gains have their own separate tax treatment in Washington. If you hold QSBS, confirm with your tax advisor that your gains remain excluded under both the capital gains tax and SB 6346.

Massachusetts: A Preview of What to Expect

Washington is not the first state to target millionaires specifically. Massachusetts implemented a 4% surtax on income over $1 million in 2023 (on top of the state's existing 5% flat income tax). The parallels are instructive:

• Massachusetts saw revenue come in higher than projected in the first year
• Some high earners relocated, but the overall economic impact was less dramatic than opponents predicted
• Income timing strategies (accelerating income before the effective date) were widely used

Washington's rate (9.9%) is significantly higher than Massachusetts's surtax (4%), and Washington's lack of any prior income tax infrastructure makes the administrative buildout more complex. But the Massachusetts experience suggests that the sky-is-falling predictions typically overstate the actual migration effect, at least in the short term.

Frequently Asked Questions

Does Washington state have an income tax now?

As of March 11, 2026, Washington has passed SB 6346, a 9.9% tax on household income above $1 million. The bill has cleared both the Senate and House and awaits Senate concurrence on House amendments before going to Governor Ferguson for signature. If signed, it takes effect January 1, 2028. Washington previously had no broad-based income tax, though the state enacted a 7% capital gains tax on gains above $270,000 in 2021.

Who has to pay the Washington millionaires tax?

The tax applies to Washington residents with household income (based on federal adjusted gross income with modifications) exceeding $1 million. Married couples and domestic partners share a single $1 million deduction. Nonresidents earning Washington-source income above the threshold are also subject to the tax, with the standard deduction prorated based on the ratio of Washington income to total federal AGI.

What income is exempt from the Washington millionaires tax?

Exempt income includes gains from real estate sales, sales of qualified family-owned businesses, certain retirement income (including public pensions), and federal disaster or working capital grants. There is also an optional charitable deduction of up to $100,000 (inflation-indexed). The $1 million standard deduction effectively exempts the first $1 million of qualifying income.

When does the Washington income tax take effect?

The tax applies to income earned on or after January 1, 2028. First tax returns and payments are due in 2029. The $1 million standard deduction begins adjusting for inflation in 2030.

Is the Washington millionaires tax constitutional?

This is the central legal question. Washington's Supreme Court ruled in Culliton v. Chase (1933) that income is property, making graduated income taxes unconstitutional under the state's uniformity clause. However, the court upheld the capital gains tax in Quinn v. State (2023) by classifying it as an excise tax on a specific transaction. SB 6346 uses similar language, defining the tax as a levy on the "receipt of income." Whether the court extends the excise tax theory from a transaction-specific tax (capital gains) to aggregate annual income is the question that will likely be litigated.

How is the Washington millionaires tax calculated?

Start with federal adjusted gross income. Add back non-business state and local taxes and the federal deduction for state income taxes paid by pass-through entities. Subtract the $1 million standard deduction and an optional charitable deduction (up to $100,000). The remaining amount is taxed at 9.9%. Credits are then applied for taxes paid to other states, Washington capital gains tax, and B&O taxes.

Can I avoid the Washington millionaires tax by moving to another state?

Moving to a state with no income tax (such as Florida, Texas, or Nevada) before January 1, 2028 would mean you are not a Washington resident when the tax takes effect. However, residency is determined by domicile and physical presence tests, not just where you say you live. You must genuinely establish domicile in your new state, sever Washington ties, and document the change thoroughly. Nonresidents who earn Washington-source income above the threshold may still owe the tax on that income.

What is the Washington pass-through entity tax election?

Pass-through entities (S corporations, partnerships, LLCs) can elect to pay the 9.9% tax at the entity level rather than passing income through to individual owners. Owners then receive a credit on their personal returns for their share of the entity-level tax. However, owners must add back the federal deduction for the entity-level tax paid. This election can provide a federal tax benefit by allowing the state tax to be deducted at the entity level, sidestepping the $10,000 SALT deduction cap for individuals.

Key Takeaways

• Washington passed a 9.9% income tax on household income above $1 million. SB 6346 cleared both chambers in March 2026 and awaits Senate concurrence and the governor's signature.
• The $1 million threshold is per household. Married couples share the deduction. Two $600K earners owe tax on the combined amount over $1 million.
• The tax takes effect January 1, 2028. First payments due in 2029. You have a two-year planning window.
• Real estate, family businesses, and retirement income are exempt. The tax targets earned and investment income, not property sales or pensions.
• Credits prevent double taxation. You get credit for Washington capital gains tax, B&O taxes, and income taxes paid to other states.
• The pass-through entity election matters for business owners. Entity-level payment can bypass the federal SALT cap.
• A court challenge is coming. The "excise tax on receiving income" theory will be tested against nearly a century of precedent.
• The revenue funds education, healthcare, and consumer tax relief. Including B&O exemptions for 65% of small businesses and sales tax cuts.
• This is part of a larger tax overhaul. Evaluate the full picture: B&O surcharges, luxury taxes, estate tax increases, and more are already law.
• Start planning now. Income timing, entity structuring, charitable giving, and residency changes all benefit from the two-year runway. Consult a qualified tax professional.

Considering a residency change? Your Tax Base helps high earners establish legitimate domicile in no-income-tax states with a real residential address, compliance monitoring, and CPA access. See plans starting at $55/month.

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This article is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional or attorney for guidance specific to your situation.

Sources: Washington State Legislature, SB 6346; WA Department of Revenue, 2025 Tax Legislation; WA Senate Democrats; NorthStar Law Group; Holland & Knight; Clark Nuber; Ballard Spahr; The Startup Law Blog; RSM US; FOX 13 Seattle; OPB.