Washington’s new income tax doesn’t take effect until January 1, 2028, and the Department of Revenue hasn’t issued guidance on estimated payments yet. But Section 401 of ESSB 6346 makes clear that estimated payments will be required, and the penalty provisions for underpayment are already written into the statute. Here’s what we know, what we can reasonably expect, and how to start planning now.
(For an overview of ESSB 6346, see Washington’s New Income Tax: What Founders, Investors, Athletes, and High Earners Need to Know. For the full tax landscape, see Washington State Taxes.)
What the Statute Says
Section 401 of ESSB 6346 delegates the design of the estimated payment system to the Department of Revenue. The statute authorizes DOR to establish payment schedules, safe harbor thresholds, and administrative procedures. It does not prescribe a specific quarterly schedule or payment amounts — those details will come through DOR rulemaking.
What the statute does specify: penalties for underpayment. Section 401 imposes an underpayment penalty on taxpayers who fail to make sufficient estimated payments during the tax year. The penalty is calculated as interest on the shortfall, running from the date each payment was due through the date of actual payment or the filing deadline, whichever comes first.
The statute also provides that the annual return is due on or before the fifteenth day of the fourth month following the close of the tax year — April 15 for calendar-year taxpayers. This mirrors the federal filing deadline.
What to Expect: Following the Federal Model
Nearly every state with an income tax follows the federal estimated payment model, and Washington will almost certainly do the same. Under the federal system, estimated payments are due quarterly: April 15, June 15, September 15, and January 15 of the following year. Each payment covers roughly one-quarter of the annual tax liability.
The federal safe harbor rules allow taxpayers to avoid penalties by paying either 100% of the prior year’s tax liability (110% for higher-income taxpayers) or 90% of the current year’s liability, whichever is smaller. Washington will likely adopt a similar framework, though the specific percentages may differ.
Because 2028 is the first tax year, there will be no “prior year” liability for safe harbor purposes. DOR will need to address this transition — likely by requiring estimated payments based on projected current-year income, with some leniency for first-year compliance. Watch for DOR guidance on this point in late 2027.
Who Will Need to Make Estimated Payments
Estimated payments are primarily for taxpayers with significant income that isn’t subject to withholding. This includes:
Investment income. Dividends, interest, and short-term capital gains that flow through federal AGI into Washington base income. If your investment portfolio generates income that pushes you above $1 million, you’ll need to make estimated payments on the excess.
K-1 income from pass-through entities. Partners, S-corp shareholders, and LLC members who receive K-1 income above the threshold will need to make estimated payments — unless the entity makes the entity-level election under §502, in which case the entity pays the tax directly. See Washington’s New Income Tax and Pass-Through Business Income for details on the entity-level election.
Business income. Sole proprietors and self-employed individuals with income above $1 million.
One-time events. Stock option exercises, business sales, large bonuses, and other spikes in income. These create estimated payment obligations in the quarter the income is recognized.
W-2 employees may or may not need to make estimated payments, depending on whether Washington implements wage withholding (more on this below).
The Entity-Level Election
Section 502 of ESSB 6346 provides a pass-through entity elective tax. Partnerships, S-corps, and LLCs taxed as partnerships can elect to pay Washington’s income tax at the entity level, at the same 9.9% rate. Owners receive a credit on their individual returns.
If an entity makes this election, the entity — not the individual owners — is responsible for making estimated payments. This simplifies compliance for owners who receive K-1 income from multiple entities, and it creates a full federal SALT deduction for the entity-level payment (bypassing the $10,000 individual SALT cap).
Entities making the election will need their own estimated payment schedule. DOR guidance will need to clarify whether entity-level payments follow the same quarterly schedule as individual payments.
Withholding vs. Estimated Payments
A key open question: will Washington require employers to withhold the income tax from wages? The statute doesn’t directly mandate withholding — it delegates the mechanics to DOR. But there are two possible approaches:
No withholding (estimated payments only). Under this model, every taxpayer above $1 million is responsible for making their own quarterly estimated payments. This is simpler for employers but puts the compliance burden entirely on individuals. The risk is that some taxpayers will fail to make timely payments, creating collection challenges for the state.
Withholding for wages above a threshold. DOR could require employers to withhold on wages above a certain level — say, the annualized $1 million threshold. This would capture most high-earning employees at the source, similar to how federal withholding works. But it’s more complex to implement, especially for employers operating in multiple states.
Most states with income taxes use withholding. Washington will probably implement some form of employer withholding, but the details won’t be clear until DOR issues regulations. For planning purposes, assume you’ll need to make estimated payments on non-wage income regardless.
Penalties for Underpayment
Section 401 specifies that underpayment penalties apply when estimated payments fall short of the required amount. The penalty is structured as interest on the deficiency, calculated from the due date of each quarterly payment through the date of actual payment.
The interest rate will be set by DOR, likely pegged to a market rate plus a statutory margin (this is how most states calculate estimated payment penalties). Federal underpayment penalties currently run at approximately 8% annually.
Penalties can be avoided by meeting the safe harbor: paying enough through estimated payments (and any withholding) to cover the required percentage of your tax liability. For the first year (2028), expect DOR to provide some transitional relief — but don’t count on it. The safest approach is to overpay estimates in 2028 and receive a refund when you file.
Planning for 2028
Even though DOR hasn’t issued guidance yet, there are concrete steps to take now:
Model your expected 2028 income. Run projections based on your current income trajectory, expected investment returns, and any planned transactions (option exercises, asset sales, business distributions). If your projected federal AGI exceeds $1 million, you’ll owe Washington tax.
Calculate the approximate tax. Take your projected AGI, subtract $1 million, and multiply by 9.9%. That’s your approximate Washington tax liability. Divide by four for quarterly estimated payments.
Set aside reserves starting now. If you know you’ll owe Washington tax in 2028, start building a reserve fund. Setting aside 2.5% of income above $1 million each quarter (one-fourth of the 9.9% rate) creates a natural quarterly payment reserve.
Coordinate with federal estimated payments. If you already make federal estimated payments, you’ll need to add Washington payments to your quarterly routine. Work with your tax advisor to create a combined payment calendar.
Watch for DOR guidance. The Department of Revenue will need to issue rules well before January 1, 2028 — probably by mid-2027 — to give taxpayers time to prepare. Monitor the DOR website and subscribe to their tax updates.
The Bottom Line
Washington’s estimated payment system hasn’t been designed yet, but the statutory framework is clear: if you owe the tax, you’ll need to pay it quarterly, and you’ll face penalties if you don’t. The federal model gives us a reliable template for what to expect. Start modeling your 2028 liability now, build reserves, and watch for DOR rulemaking in 2027.
We’ll update this post as DOR issues guidance. For planning strategies to reduce your 2028 liability, see Washington’s New Tax Reality: Why 2028 Changes Everything for High Earners.
Need help planning for Washington’s estimated payment requirements? Book a 20-minute intro call to discuss your specific situation. Also see: Washington State Taxes Guide | Income Tax Planning Guide for High Earners
