Washington’s 9.9% Income Tax (ESSB 6346): Founders & High Earners Guide

✅ Last Updated: March 30, 2026

If you want the action plan rather than the full explainer, see our companion roadmap on the new Washington income tax.

In This Guide

• → The Basic Structure: How ESSB 6346 Works
• → The Marriage Penalty: A Serious Problem the Legislature Refused to Fix
• → What This Means for Founders and Startup Investors
• → What This Means for Athletes — Professional, College, and NIL
• → The Constitutional Fight Ahead
• → Residency: Who Is a Washington Taxpayer?
• → What You Should Be Doing Now
• → Deep Dives on Key Topics
• → My Take

This article is for general informational purposes only and does not constitute legal or tax advice. Nothing here creates an attorney-client relationship. Please consult qualified legal and tax counsel regarding your specific situation.

Governor Bob Ferguson signed ESSB 6346 into law on March 30, 2026. Starting January 1, 2028, Washington will impose a flat 9.9% tax on household income above $1 million.

The tax base is federal adjusted gross income (AGI) — not just wages. It captures business income, investment income, pass-through distributions, and more. That broad base is what makes this consequential, and it's why domicile and income structure are the main planning levers.

1. QSBS gains should remain outside the tax base. Gains excluded from federal AGI under Section 1202 should not be subject to this tax based on the bill's current structure — but expect administrative guidance and possible litigation over edge cases.
2. Non-QSBS exits face a heavier Washington tax stack. The millionaires' tax layers on top of the 9.9% capital gains tax, 20% federal long-term capital gains rate, and 3.8% NIIT — pushing the combined marginal rate above 40% for large non-QSBS exits.
3. Domicile and timing planning just became more important. The 2028 effective date creates a planning runway — but the decisions that matter (QSBS status, entity structure, residency facts) need attention now.

The Basic Structure: How ESSB 6346 Works

The Rate and Threshold

ESSB 6346 imposes a flat 9.9% tax on Washington taxable income above $1 million per household. Below $1 million, you owe nothing. Above it, you pay 9.9% on every dollar over the threshold.

The tax takes effect January 1, 2028. First returns and payments are due in 2029. The standard deduction adjusts for inflation beginning in 2030.

What Counts as Income

The tax starts with your federal adjusted gross income — roughly line 11 on Form 1040. That's a broad base. It isn't limited to wages or salaries; it captures business income, investment income, and partnership distributions as well.

From that starting point, the bill makes Washington-specific adjustments. Several categories of income are excluded:

• Gains from real estate sales
• Gains from the sale of qualified family-owned businesses
• Note on retirement income: ESSB 6346 expressly amends multiple public retirement statutes to clarify that existing “tax exempt” language in those statutes does not shield pension or retirement benefits from the new Title 82A tax. Public pensions are not excluded.
• Income excluded from federal AGI (including tribal treaty income)
• Payments excluded from federal AGI (disaster-related payments are excluded only to the extent they are excluded from federal AGI — ESSB 6346 does not create a standalone disaster grant exemption)

The Credits

The bill includes credits designed to reduce double-taxation:

Capital gains tax credit. Washington already imposes a capital gains tax — 7% on gains up to $1 million, 9.9% on gains above $1 million. Amounts you pay under the capital gains tax can be credited against your millionaires' tax liability, so you're not taxed twice on the same gains.

B&O tax credit. Business owners can credit a portion of B&O taxes paid against their millionaires' tax.

Out-of-state income tax credit. If you pay income tax to another state on the same income, you can credit that against your Washington liability.

Charitable deduction. You can deduct up to $100,000 in charitable contributions (the $100,000 cap is not indexed for inflation — only the $1,000,000 standard deduction is indexed, beginning in October 2029) from Washington taxable income.

The Marriage Penalty: A Serious Problem the Legislature Refused to Fix

This is where the bill gets genuinely punishing — and it's the issue I raised loudest during the session.

The $1 million standard deduction is a household deduction, not an individual one. Married couples and registered domestic partners share a single $1 million deduction.

Two single people, each earning $700,000, owe zero. Neither crosses the $1 million threshold.

The same two people, married, owe 9.9% on $400,000 — nearly $40,000 in new taxes because the bill uses a single household-level $1 million deduction for married couples and registered domestic partners.

That's the marriage penalty baked into ESSB 6346's structure. The legislature was aware of it. They didn't fix it. This is a real issue for dual-income professional couples, tech executives, and business owners in Washington.

For a full breakdown — including worked examples at every income level, the community property complications, and the charitable deduction penalty — see Washington's New Income Tax: The Marriage Penalty Explained.

What This Means for Founders and Startup Investors

This is where I want to spend real time, because the startup community has the most at stake — and the most complexity to navigate.

If you're comparing Washington to California specifically, see Washington vs. California: A Tax Comparison for Founders and Investors for a detailed side-by-side on rates, QSBS, capital gains, real estate, pass-throughs, and estate taxes.

The QSBS Question

When a founder sells qualifying QSBS stock under Section 1202 — generally stock in a C corporation held for at least five years — up to 100% of the gain may be excluded from federal gross income.

That exclusion matters here because ESSB 6346's tax base starts from federal AGI. Gains excluded from federal gross income under Section 1202 never enter AGI in the first place — and if they're not in AGI, they're not in Washington's tax base either.

The result: a founder who sells qualifying QSBS should not owe Washington millionaires' tax on that gain. Confirm the analysis with qualified counsel before you close any transaction, and watch for administrative guidance as the law matures.

For non-QSBS gains, the capital gains tax credit under ESSB 6346 prevents double-taxation on the same income — but it's nonrefundable and can be partially wasted in mixed-income years where the millionaires' tax base is larger than the capital gain alone.

We will continue to update this section as the law and any guidance develops.

Related reading: QSBS and Washington's New Millionaire Tax

Related reading: QSBS Is Alive and Well in Washington State and Does QSBS Avoid Washington's New 9.9% Income Tax?

The Tax Stack Problem

For founders and investors without QSBS protection, ESSB 6346 adds a third layer to an already heavy exit tax stack.

Here's what a Washington-domiciled founder's tax picture can look like on a large exit:

• Federal capital gains tax: Up to 23.8% (20% long-term capital gains rate + 3.8% net investment income tax)
• Washington capital gains tax: 7% (below $1M gains) or 9.9% (above $1M gains) — for gains not covered by QSBS
• Washington millionaires' tax: 9.9% on total household income above $1 million (with credit for capital gains tax paid)

For a large non-QSBS gain — think a founder who doesn't qualify for Section 1202 exclusion, or a large liquidity event from a secondary sale — the Washington-specific tax burden compounds meaningfully.

The credit for Washington capital gains taxes prevents the most direct double-taxation — you won't pay both taxes in full on the same dollars. But the credit is nonrefundable, and because the millionaires' tax is computed on total household income, high earners with large exits in high-wage years will still see meaningful additional marginal tax after the credit.

Angel Investors

For angel investors, the analysis turns on whether investments qualify for QSBS treatment. Non-QSBS investments — in LLCs, partnerships, or C corporations that don't satisfy Section 1202 — face both Washington's capital gains tax and the millionaires' tax on gains above $1 million.

This makes the QSBS qualification analysis even more important for Washington-based angel investors. Getting the structure right at the investment stage matters enormously downstream. We'll have more on the QSBS treatment question as the law develops.

The Pass-Through Entity Angle

ESSB 6346 introduces a pass-through entity (PTE) tax election — something Washington didn't previously have. Qualifying businesses can pay state-level taxes at the entity level, potentially allowing owners to claim a corresponding federal deduction and partially work around the federal SALT cap. The value of the election depends on your specific federal tax position, particularly given the SALT cap changes under the One Big Beautiful Bill Act.

For business owners with significant pass-through income, the interaction between the PTE election, the B&O tax credit, and the millionaires' tax creates real modeling complexity. Don't assume the credits make this a wash.

For a complete breakdown of how pass-through income is taxed — including the §502 entity-level election, the B&O credit, and entity structure considerations — see Washington's New Income Tax and Pass-Through Business Income: S-Corps, LLCs, and Partnerships.

What This Means for Athletes — Professional, College, and NIL

ESSB 6346 creates new tax exposure for athletes at every level — resident professionals, visiting players, and college athletes earning NIL income. The analysis differs by residency status and income type.

Resident Professional Athletes

Professional athletes domiciled in Washington — Seahawks, Mariners, Kraken, Sounders, Storm, and OL Reign players who make their home here — face the most straightforward exposure. Salaries, signing bonuses, performance bonuses, endorsements, and appearance fees all flow through federal AGI. Any household income above $1 million is subject to the 9.9% tax.

For the top earners, the numbers are significant. A Seahawks quarterback earning $40 million per year faces 9.9% on approximately $39 million above the threshold — nearly $3.9 million in new Washington tax annually, on top of federal and any other applicable taxes.

The marriage penalty applies equally here. A married athlete household shares a single $1 million deduction — which can produce significantly more tax than if the same two earners were single.

Nonresident Professional Athletes: The Jock Tax — Already in the Bill

ESSB 6346 explicitly taxes nonresidents on Washington-source income using a duty-day methodology — this is already in the bill text, not a future regulatory question. A visiting player who works, say, 4 days in Washington out of 200 total duty days owes Washington tax on 4/200 of their annual compensation.

The bill also includes specific NIL and publicity income sourcing rules for nonresident student athletes. Agents, advisors, and teams should begin modeling Washington exposure now.

College Athletes and NIL Income

NIL income is ordinary income that flows through federal AGI. Top college athletes earning significant NIL should be aware of the 183-day statutory residency rule — spending more than 183 days in Washington can make you a resident even if your domicile is elsewhere.

Most college athletes are not Washington domiciliaries. A five-star recruit from Georgia who attends the University of Washington likely retains their Georgia domicile, particularly if they maintain a permanent residence there and plan to leave Washington after graduation. In that case, they would not meet the Washington domicile test and would need to be careful about the 183-day statutory residency rule.

However, athletes who have established Washington as their domicile — those who have lived in Washington long enough and with sufficient intent to make it their permanent home — would be subject to ESSB 6346 on all income above $1 million, including NIL.

The competitive implication is real: Washington just became a less attractive state for top-tier college recruits who expect to earn significant NIL income and who might otherwise consider UW or WSU. Schools in Florida, Texas, Nevada, and other no-income-tax states have a new talking point in the living room.

Planning Considerations for Athletes

• Residency analysis is critical. For any athlete earning above $1 million, a careful domicile and residency analysis should be done before 2028. The line between domicile and statutory residency matters enormously.
• Nonresident athletes should begin modeling Washington exposure now. ESSB 6346 explicitly taxes nonresidents on Washington-source income using a duty-day methodology — this is in the bill text, not a future regulatory question. Agents and advisors to visiting athletes should not wait for DOR guidance to begin planning.
• NIL contracts should account for state tax. College athletes and their advisors negotiating multi-year NIL deals should model Washington tax exposure as part of the deal economics, particularly for athletes who may remain in Washington through 2028 and beyond.
• The marriage penalty applies here too. Married athlete households should model the household income picture carefully — the single $1 million deduction structure can produce significant additional liability for dual-income couples.

The Constitutional Fight Ahead

Understanding what happens next requires knowing some history.

The 1933 Precedent

Washington's constitution doesn't explicitly prohibit income taxes. But in 1933, the Washington Supreme Court held that income is property under the state constitution, meaning income taxes are subject to the uniformity clause, which requires uniform rates on all property of the same class. A flat rate income tax might survive; a graduated one would not. That ruling has blocked income tax legislation for nearly a century. And if a court classifies ESSB 6346 as a property tax on income, the 9.9% rate is far above Washington's constitutional 1% property tax levy limit — meaning the excise/property-tax classification question is the entire ballgame, not just a factor.

The Constitutional Argument Supporters Are Making

ESSB 6346's supporters argue the tax should be classified as an excise on the act of receiving income — not a property tax on income itself. In 2023, the Washington Supreme Court upheld the capital gains tax using this excise-tax theory, classifying it as a tax on the transaction of selling assets. Supporters argue the same logic extends here.

The millionaires' tax is flat (9.9% on income above $1 million — not graduated within the taxable range), which also helps distinguish it from the graduated tax structure the 1933 court rejected.

The "Necessity" Clause and Referendum Block

ESSB 6346 includes a provision declaring the tax "necessary for the support of the state government." Under Washington law, measures declared necessary for state support are exempt from the referendum process — meaning voters cannot overturn the law by placing it on the ballot.

This is one of the most controversial aspects of the bill. Opponents argued it deliberately insulates the tax from democratic accountability. The legislature disagreed. Whether the necessity declaration is valid — and whether courts will accept it — is itself likely to be litigated.

What to Expect

Litigation is virtually certain. The Washington Supreme Court will have to decide whether the excise-tax theory that carried the 2023 capital gains ruling extends to a broad annual income tax. The tax may be enjoined while that plays out — plan accordingly, but plan as if it survives.

For a deeper analysis of the constitutional arguments on both sides, see Will Washington's Millionaire Tax Survive a Court Challenge?.

Residency: Who Is a Washington Taxpayer?

You are a Washington taxpayer under one of two paths:

1. Domicile: If Washington is your permanent home — the place you intend to return to — you're a Washington domiciliary.
2. Statutory residency: If you maintain a place of abode in Washington and are present in the state for more than 183 days during the tax year, you're a statutory resident even if your domicile is elsewhere.

A Washington domiciliary can avoid residency classification only by (a) maintaining no permanent place of abode in Washington, (b) maintaining a permanent place of abode elsewhere, and (c) spending 30 or fewer days in Washington during the tax year. That's a high bar for anyone who actually lives here.

I wrote a dedicated post unpacking the 30-day rule and why it's more confusing than it looks: The 30-Day Rule for Washington Income Tax Residency (and Why It's Confusing).

Changing domicile requires more than renting an apartment somewhere else. Courts look at intent, where your primary residence is, voter registration, where your family lives, and where your professional relationships are centered. Get proper legal and tax advice before taking action.

If you work remotely — whether for a Washington employer or an out-of-state company — Washington uses a physical presence test, not a convenience-of-the-employer rule, to determine income sourcing. Six real-world scenarios are covered in a dedicated post.

What You Should Be Doing Now

The 2028 effective date creates a real planning window — but the decisions that matter need to happen before then. Here's what to focus on:

If you hold QSBS: Confirm — with counsel — that your gains continue to be excluded from federal AGI and that the ESSB 6346 framework doesn't change that analysis for your specific situation. Pay attention to any further legislative developments affecting QSBS treatment at the state level.

If you're a business owner with pass-through income: Model out how the PTE election, B&O credit, and millionaires' tax interact for your specific structure. Don't assume the credits make this a wash.

If you're in a dual-income household above or near $1 million combined: The marriage penalty is real. Your tax professional should be modeling your household income picture through 2028 and beyond.

If you're considering a large liquidity event: Timing matters. The tax doesn't apply to income earned before January 1, 2028. If you have control over timing — including the timing of secondary sales, company exits, or other significant income events — the effective date is a planning consideration.

On residency: Don't make hasty decisions, and be skeptical of anyone who tells you that changing domicile is simple. It isn't. If you're genuinely considering relocating, get proper legal and tax advice before taking action.

For a comprehensive planning walkthrough, see Washington State Income Tax Planning (2026–2028): Complete Guide for High Earners.

Need help with Washington tax planning? Joe Wallin advises founders, investors, and executives on QSBS qualification, entity structure, and Washington state tax issues. Schedule a consultation.

Deep Dives on Key Topics

Retirement and charitable planning: If you're approaching retirement or already retired, the interaction between this tax and your retirement accounts matters. See Is Retirement Income Subject to Washington's 9.9% Income Tax? For strategies to reduce your liability through giving, see Charitable Giving Strategies to Reduce Your Washington Income Tax.

Estimated payments and compliance: Washington will require quarterly estimated payments. For deadlines, calculation methods, and the entity-level election option, see How to Make Estimated Tax Payments Under Washington's New Income Tax.

Moving and residency: If you're considering relocating — or splitting time between states — the proration rules and 30-day trap are critical. See What Happens If You Move Mid-Year? For a side-by-side look at your options, see Washington vs. Oregon vs. Nevada: A Tax Comparison for Founders.

Estate planning: Washington's income tax creates a double-tax problem when combined with the state estate tax. If you haven't revisited your estate plan, see Estate Planning Before 2028: How the Income Tax Changes the Calculus.

Rate trajectory: No state has ever introduced an income tax and kept the rate stable. For the historical pattern and what it means for Washington, see Will Washington's Income Tax Rate Go Up? (History Says Yes).

My Take

I spent months opposing ESSB 6346 — not because I think Washington's tax structure is perfect, but because this bill introduces serious structural problems the legislature chose not to fix: a punishing marriage penalty, constitutional questions papered over with a "necessity" declaration, and a broad tax base that will hit founders, investors, and business owners in ways that will only become clear over time.

The trajectory of Washington's tax policy is clear: higher rates, broader bases, and more complexity. No state has introduced an income tax and kept the rate stable. The 9.9% rate on millionaires today is a floor, not a ceiling.

For founders, angels, and investors, the most important planning happens before 2028: QSBS qualification, entity structure, exit timing, and residency. The window is real. Use it. And if you haven't talked to a qualified tax attorney about how this affects your specific situation, that conversation is overdue.

Deep Dives by Topic

For detailed analysis on specific aspects of the new tax:

• How Washington's 9.9% Income Tax Applies to Stock Options and RSUs — ISOs, NQSOs, RSUs, 83(b) elections, and timing strategies
• Washington's Income Tax and Remote Workers: Who Owes What? — residency rules, sourcing, cross-border scenarios
• Washington vs. California: A Tax Comparison for Founders and Investors — rates, QSBS, capital gains, estate tax
• Pass-Through Business Income: S-Corps, LLCs, and Partnerships — entity-level election, SALT workaround, B&O overlap
• Are Real Estate Gains Subject to the 9.9% Tax?
• Does QSBS Avoid Washington's New 9.9% Income Tax?

Joe Wallin is a startup and tax attorney at Carney Badley Spellman in Seattle. His practice focuses on QSBS/Section 1202 planning, equity compensation, startup formation, and venture financing. He chairs the Angel Capital Association's Legal Advisory Committee and is the author of Angel Investing: Start to Finish. This post is for general informational purposes only and does not constitute legal or tax advice. Please consult qualified counsel regarding your specific situation.

Related Posts

• Washington vs. California: A Tax Comparison for Founders and Investors
• Stock Option Exercise Timing: Planning Before Washington's 2028 Income Tax
• How Washington's New 9.9% Income Tax Applies to Stock Options and RSUs
• ISO vs. NSO: The Complete Guide to Incentive Stock Options and Nonqualified Stock Options
• Washington's 9.9% Income Tax: What High Earners Must Do Before 2028
• Washington's New Income Tax: The Complete Guide