Does Washington have a state income tax? Washington has no broad personal income tax in 2026 or 2027. Its separate capital gains excise tax already applies to certain long-term gains. Under ESSB 6346, a 9.9% income tax is scheduled to begin January 1, 2028 unless repealed or struck down.
The income tax applies to Washington taxable income after state adjustments and deductions. The standard deduction is $1 million per individual, with spouses and registered domestic partners sharing $1 million regardless of filing status. For a sale, move, or business decision before 2028, use the examples and planning sections below.
Status checked September 7, 2026: the income tax remains enacted for 2028. For the repeal initiative and constitutional challenge, see the Initiative 645 litigation and status tracker. The existing capital gains tax is a separate regime.
Primary sources: enacted income-tax law, DOR income-tax guidance, and official Initiative 645 ballot certification.
Last updated: September 7, 2026
| Item | Detail |
|---|---|
| Broad personal income tax in 2026 | None; capital gains excise tax and business taxes apply separately |
| New income tax rate | 9.9% |
| Effective date | January 1, 2028 |
| First payments due | 2029 |
| Standard deduction | $1,000,000 per individual (married couples and registered domestic partners share one) |
| Capital gains tax (in force now) | 7% on first $1M of taxable gain (after deduction); 9.9% above |
| Statute | ESSB 6346 |
| Legal status | Constitutional challenge pending (Klickitat County); repeal measure certified for the November 3, 2026 ballot (Initiative 645) |
Washington's capital gains tax
The existing capital gains tax applies at 7% and 9.9% after deductions. Its base starts with federal net long-term capital gain, so federally excluded QSBS gain stays outside it. Direct real-estate sales, qualifying retirement accounts, and certain other assets are exempt.
For the full breakdown — rates by year, exemptions, filing, the QSBS interaction, and planning — see our complete guide to the Washington State capital gains tax.
The new Washington income tax (effective January 1, 2028)
In addition to taxing capital gains, ESSB 6346 establishes an individual income tax. It also amends RCW 1.90.100 (Initiative 2111) to allow the new tax while its standard deduction remains at least $1 million.
For the full statutory analysis — mechanics, the marriage penalty, the PTE election, and the planning moves — see Washington’s 9.9% Income Tax (ESSB 6346): Founders & High Earners Guide.
Key dates at a glance:
2026–2027 — Planning window. Income recognized before January 1, 2028 falls outside the new income tax. Amounts recognized later require the Washington allocation, modification, deduction, and credit analysis even if the transaction closed earlier. Earlier recognition can still trigger federal tax and Washington capital gains tax.
November 3, 2026 — Repeal vote. Voters decide Initiative 645, certified for the ballot on July 15, 2026, which would repeal ESSB 6346 and restore the general prohibition on individual income taxes.
January 1, 2028 — Effective date. The 9.9% tax applies to Washington taxable income after applicable deductions and state adjustments.
2029 — First returns and payments due in April; individual estimated payments not required before July 1, 2029 (the same date applies to electing pass-through entities).
Ongoing — Litigation track. The constitutional challenge in Klickitat County could alter or stop the tax before 2028.
Who pays. Individuals with Washington taxable income after state allocation, modifications, and deductions. Federal AGI is the starting point; credits reduce the resulting tax. Part-year residents and nonresidents must apply statutory proration rules.
Standard deduction. Spouses and registered domestic partners share one deduction even when filing separately. The examples below show how this affects combined income.
Rate. The 9.9% rate applies to Washington taxable income after the required modifications and deductions. Long-term gains have a separate base-income adjustment under RCW 82A.04.210. The credit for Washington capital gains tax is limited to the income tax otherwise due for the same year: unused credit is not refundable and cannot be carried forward or backward. Compute both taxes and the credit rather than adding their top rates or assuming that one tax disappears. Capital-gains base adjustment Capital-gains credit limits
Income base. The tax uses federal adjusted gross income as the starting point, with Washington-specific additions and subtractions. The statute does not create a general retirement-income exclusion, so IRA distributions, pension payments, and similar items included in federal AGI can count toward the $1 million threshold.
Pass-through entity election. Eligible partnerships, including LLCs taxed as partnerships, and S corporations may elect to pay at the entity level. The planning section below explains the potential federal benefit and limits on owner credits.
Trusts. The statute includes specific rules for certain incomplete-gift nongrantor trusts. Review those rules before relying on a trust strategy; see our trust planning guide.
Washington vs. other states
Even after 2028, most Washington residents will remain below the new income-tax threshold. For founders facing a large exit, comparison with a state without an individual income tax, such as Nevada or Florida, may look different.
California's top marginal individual income tax rate reaches 13.3%, and it taxes capital gains as ordinary income. Oregon's top rate is 9.9%, but its graduated brackets reach that rate at much lower income levels. Nevada, Texas, Florida, and Wyoming impose no state individual income tax. Washington combines a high income-tax threshold with an existing capital gains tax and continued conformity to the federal QSBS exclusion. Compare your income mix, exemptions, and residency rather than top rates alone.
For deeper comparisons, see our Washington vs. California tax comparison for founders and investors and our Washington vs. Oregon vs. Nevada comparison.
What this means if you're a founder
If you're building a startup in Washington, the new tax regime changes several planning conversations.
Pre-liquidity planning matters more than ever. Entity structure, holding periods, trusts, and domicile can affect the outcome. Review them 12 to 24 months before a sale, while choices remain open.
QSBS still works in Washington. Because Washington conforms to federal Section 1202, qualified small business stock gain excluded at the federal level is also excluded from Washington's capital gains tax. This is a real advantage over California and other non-conforming states.
Entity choice has shifted. The relative attractiveness of C-corp, S-corp, and LLC structures looks different when Washington's 9.9% income tax can reach pass-through income above the $1 million threshold — and when the PTE election creates a new lever for partnership-taxed entities. We walk through the analysis in C-Corp vs. S-Corp vs. LLC: Washington Income Tax.
Section 1045 rollovers may be more valuable. As a statutory matter, deferring gain into replacement QSBS should generally defer both federal tax and Washington capital gains tax, although published Washington guidance on that point remains limited. See our guide to Section 1045 rollovers.
Stock option exercise timing has a state dimension. Whether and when to exercise, and whether to file an 83(b) election, can now have Washington tax consequences as well as federal ones. See When to Exercise Stock Options and our 83(b) election guide.
What this means for retirees and high-net-worth individuals
If you're not a founder but you live in Washington with significant assets or retirement income, the analysis is different.
Retirement income. For Washington residents, taxable traditional IRA and 401(k) distributions, pensions, and taxable Social Security can enter federal AGI and the Washington calculation. Qualified Roth distributions, recovery of after-tax basis, and qualifying rollovers generally do not. Apply the state modifications, deductions, and credits. Separately, 4 U.S.C. §114 bars a state from taxing specified retirement income of an individual who is neither resident nor domiciled there. A former Washington work history alone does not override that protection. Check the statutory definition of protected retirement income; not every deferred-compensation payment qualifies. Federal protection for nonresident retirement income Retirement-income guide
Trust planning. Section 307 requires a Washington resident taxpayer to add income from a federally nongrantor trust funded with an incomplete gift under Section 2511, to the extent not otherwise included in Washington base income. A trust’s age or stated non-tax purpose does not itself establish an exception. Review gift completeness, federal ownership, distributions, and the actual statutory requirements. See Trust Planning for Washington Income Tax.
Residency planning. Moving to a state without an individual income tax can change the result, but Washington-source income may remain taxable. Establish and document the actual change of domicile.
Planning Levers for High Earners (2026–2027)
Use 2026 and 2027 to compare recognition dates, federal brackets, QSBS holding periods, residency, and investment risk. Earlier recognition avoids the new income tax, but may increase other taxes or costs.
1. Section 1202 and QSBS
Qualified small business stock can produce a federal gain exclusion that generally also stays outside Washington’s tax base. The exclusion applies only to qualifying gain within the available Section 1202 limit. Stock acquired after September 27, 2010 through July 4, 2025 can qualify for 100% after more than five years; earlier acquisitions have historical rules. Post-July 4, 2025 acquisitions can qualify for 50%, 75%, or 100% after at least three, four, or five years. Acquisition dates reflect applicable holding-period tacking. The taxable remainder is not exempt merely because the shares qualify as QSBS. See the full QSBS guide and QSBS & Washington Taxes: A Start Here Guide.
2. Income timing before 2028
Income recognized in 2026–2027 falls outside the new income tax. Compare the federal, capital-gains, and investment consequences before accelerating a bonus, option exercise, or sale. Installment payments, earnouts, and escrow amounts need separate recognition analysis: a 2027 closing does not put every payment in 2027. See our installment sales guide.
3. AGI reduction strategies
The right retirement plan can provide a substantial deduction for some business owners. A cash-balance or defined-benefit plan may permit larger contributions than a 401(k), depending on age, compensation, plan design, and applicable limits. Evaluate funding commitments and allowable deductions with an actuary and tax advisor. Deferred compensation arrangements and eligible HSA contributions also merit review.
Charitable gifts have a separate Washington deduction. Section 309 limits it to federally claimed Section 170 contributions to qualifying Washington-directed organizations, capped at $100,000 per individual or combined for spouses and registered domestic partners. A cash gift to a national donor-advised fund generally provides no separate Washington deduction. Giving appreciated property before a sale involves a different question: whether gain is recognized at all.
4. Pass-through entity tax election (PTE)
An eligible pass-through entity may elect to pay the 9.9% tax, with owners receiving nonrefundable credits. The potential benefit is federal: an entity-level state income-tax deduction may fall outside the individual SALT cap. A fully deductible $99,000 payment would save $36,630 at a 37% federal marginal rate, leaving $62,370 after that federal benefit. The Washington payment is still $99,000.
That illustration assumes the election creates no additional Washington tax, the owner can use the full credit, and the deduction produces its full assumed federal benefit. The application of owners’ $1 million deductions at the entity level requires further guidance; excess owner credits cannot be refunded or carried over. Model both routes, including the state addback of the entity’s tax deduction. The annual election is irrevocable once filed and due on DOR’s prescribed date, no later than June 15 of the taxable year. See the detailed pass-through analysis.
5. Domicile and residency planning
Establishing nonresidency before 2028 can remove non-Washington-source income from the income-tax base. It does not eliminate tax on Washington-source business income or compensation: §§401–402 preserve that exposure, including an owner’s apportioned share of a business operating here. Review both domicile and statutory residency under §101(8), including the full-year 30-day safe harbor where applicable. Document the actual move, homes, family location, work, and travel. Model the move year separately because §315 prorates the standard deduction. See How to Change Your Washington Domicile.
Real examples
These simplified examples assume full-year Washington residents, Washington base income equal to federal AGI, a full $1 million standard deduction, and no other deductions or credits. Married couples and registered domestic partners apply one deduction to their combined income.
Or plug your own figures into our Washington income tax calculator.
| AGI (individual, or combined for a married couple) | Taxable amount (AGI – $1 M) | Estimated WA tax (9.9%) |
|---|---|---|
| $1,200,000 | $200,000 | $19,800 |
| $1,500,000 | $500,000 | $49,500 |
| $2,000,000 | $1,000,000 | $99,000 |
| $3,000,000 | $2,000,000 | $198,000 |
| $5,000,000 | $4,000,000 | $396,000 |
For dual-income couples, two earners making $600,000 each would have $200,000 of taxable income under these assumptions. Part-year residents and nonresidents must prorate the deduction under §315; Washington base income includes income from the resident period, not only Washington-source income. See What Happens If You Move Mid-Year.
Illustrative outcomes for $2 million of income or gain
| Scenario | Modeled taxable income | Est. WA income tax |
|---|---|---|
| $2M ordinary income; no planning | $1,000,000 | $99,000 |
| $2M ordinary income; allowable $250K cash-balance deduction | $750,000 | $74,250 |
| $2M pass-through income; PTE election | Entity base requires separate analysis; owner’s $1M deduction not assumed here | Not estimated: model entity tax, owner credits, and federal benefit together |
| $2M gain fully excluded under §1202; no other income | $0 | $0 |
| $2M income fully recognized in 2026–27 | $0 | $0 |
Table assumptions: Except for the acceleration row, these scenarios model 2028 income under the full-year residency assumptions above. They are separate income or gain scenarios, not identical federal AGI. The cash-balance example assumes an allowable $250,000 deduction that reduces the modeled income. The QSBS example assumes all $2 million is qualifying gain excluded at 100% within the available Section 1202 limit, with no other income. The acceleration example shows only the new Washington income tax; federal and existing capital gains taxes can still apply. The PTE row intentionally supplies no liability estimate: the owner’s $1 million deduction is not automatically assumed to reduce the entity’s base. See RCW 82A.04.520.
| Assumed Washington tax payment | Assumed federal benefit at 37% | Payment less that benefit |
|---|---|---|
| $99,000 | $36,630 | $62,370 |
The federal benefit is not a reduction in the Washington tax. Other federal effects are not modeled in this comparison.
Common mistakes
- Assuming existing retirement accounts solve the problem. Contribution limits and deduction eligibility matter. Model allowable contributions alongside other planning options.
- Confusing capital‑gains and income taxes. The existing capital gains tax continues, with a credit against the new income tax. Calculate the interaction before assuming either double taxation or complete relief. See Washington Capital Gains Tax vs. Income Tax.
- Underestimating the $1 million threshold. A bonus or business sale can push income above it. The deduction is shared by spouses, and its indexing provisions require care; see why the Department of Revenue now expects 25,000 households to pay, not 21,000.
- Poor domicile planning. Renting an apartment in another state does not by itself establish a domicile change. Keeping a Washington home does not automatically prevent one either. The actual move, intended permanent home, and supporting conduct control; separately evaluate statutory residency and any Washington-source income.
Frequently asked questions
Does Washington have a state income tax? No broad personal income tax applies in 2026. The enacted tax is scheduled for 2028, while the existing capital gains tax already applies. See the status tracker for repeal and litigation developments.
Does Washington tax wages and salaries? No broad personal income tax applies to wages in 2026. From 2028, taxable wages enter the new calculation, subject to Washington allocation, modifications, deductions, and credits. Federal AGI alone does not determine liability.
Why does Washington have no income tax historically? The Washington Constitution's uniformity clause (Article VII, Sections 1-2), as interpreted in Culliton v. Chase, 174 Wash. 363, 25 P.2d 81 (1933), treated income as property that must be taxed uniformly, which blocked graduated income taxes for nine decades. The new statute is structured to test that precedent, and the pending constitutional challenge raises exactly this clause.
What is Washington's income tax rate? The scheduled rate is 9.9% of Washington taxable income after deductions. The capital gains tax has separate tiers and a credit mechanism; see Washington State capital gains tax.
When does Washington's new income tax take effect? January 1, 2028, with first returns and payments in 2029, unless repeal or litigation changes the law. See the status tracker above.
Does Washington tax capital gains? Yes. Long-term capital gains above the annual deduction ($278,000 for tax year 2025, inflation-indexed) are taxed at 7% on the first $1 million and 9.9% above that. Real estate, retirement accounts, and certain other categories are excluded.
Does Washington tax retirement income? Beginning in 2028, taxable retirement income can enter a Washington resident’s calculation, subject to applicable adjustments, deductions, and credits. Qualified Roth distributions, basis recovery, and qualifying rollovers generally stay outside federal AGI. For a recipient who is neither resident nor domiciled in Washington, 4 U.S.C. §114 protects the retirement income specified in that statute from Washington income taxation. 4 U.S.C. §114
Is QSBS exempt from Washington's capital gains tax? Yes. Washington follows federal Section 1202 treatment, so QSBS gain excluded federally is also excluded from Washington's capital gains tax.
Can a pass-through entity make a state-level election? Yes. Eligible partnerships, including LLCs taxed as partnerships, and S corporations may elect to pay the tax at the entity level. Model the entity tax, owner credits and federal consequences before electing.
How does Washington's tax regime compare to California? California taxes a broader income base and does not conform to the federal QSBS exclusion. The better outcome depends on your income mix, deductions, and residency. See our full comparison.
Bottom line
"Washington has no income tax" is no longer the full story. For the average resident, day-to-day taxes haven't changed. But for founders approaching an exit, investors with concentrated positions, and high earners crossing the new thresholds, Washington is now a state with real income-tax planning to do — and the planning starts well before the liquidity event, not after.
If you'd like to talk through how the new regime affects your specific situation, book a 20-minute call with Joe Wallin or email wallin@carneylaw.com.
