Washington’s millionaires’ tax is coming. In March 2026, the Legislature passed Senate Bill 6346, which imposes a 9.9 % tax on Washington taxable income above $1 million per household. The tax takes effect January 1 2028; first returns and payments will be due in 2029. For dual-income households, the $1 million standard deduction is shared, so a couple earning $1.2 million would owe tax on $200 000. Because the tax base starts from federal AGI and applies a $1 million deduction, planning opportunities exist in 2026–2027 for high earners, founders and investors.
New guide: Washington State Tax Planning Guide for High Earners —
How the Washington income tax works
The new tax begins with your federal adjusted gross income (AGI). From that number, Washington makes several adjustments. Long-term capital gains already subject to the state capital gains tax are added back, while gains on qualified family-owned small businesses and sales of residential real property are exempt. Interest from most state and local bonds, state and local income taxes deducted at the federal level, and certain loss carryforwards are also added back. After these adjustments you subtract a $1 million standard deduction per household (indexed for inflation), pro‑rated for part‑year residents.
For residents, the tax applies to all income; nonresidents pay only on Washington-source income, including wages earned in Washington, income from businesses operated here and gains from real or tangible property located in the state. Married couples and registered domestic partners share the single $1 million deduction. Estimated tax payments begin July 1 2029, following federal quarterly payment rules.
What income is exposed (and what isn’t)
Income included in the Washington tax base includes wages, bonuses, business income, partnership and S‑corporation income, rental income, investment income, and gains from intangible property to the extent used in a Washington business. Several exemptions and credits reduce exposure:
- Qualified family‑owned small business sales: Gains from the sale of a small business with less than $10 million in annual revenue and at least 30 % ownership by the seller are exempt.
- Residential real property: Sales of personal residences are excluded.
- Certain retirement income: Public pensions and tribal treaty income are exempt.
- Charitable contributions: Up to $100 000 per individual ($100 000 total for couples) are deductible.
- Credits: Taxes paid under Washington’s capital‑gains tax, the B&O/public utility tax and other state income taxes can offset the millionaires’ tax. Business owners can also claim a credit for pass‑through entity tax (PTET) paid at the entity level.
Incomplete nongrantor (ING) trusts are not a workaround; the statute adds back income from INGs to prevent avoidance.
The biggest planning levers
Because the tax starts with federal AGI, the most powerful planning strategies occur at the federal level:
- Section 1202 and QSBS. Qualified small business stock can provide up to 100 % exclusion from federal capital gains tax; Washington follows the federal exclusion, so the sale of QSBS can eliminate both federal and state tax if held five years and other requirements are met. Founders should confirm QSBS eligibility early and avoid disqualifying actions.
- Income timing before 2028. Since the tax applies only to income earned on or after January 1 2028, accelerating bonuses, stock‑option exercises and liquidity events into 2026–2027 can shield income from the 9.9 % levy. Conversely, delaying deductions (such as large charitable donations) to 2028 may maximize their benefit under the new tax.
- AGI reduction strategies. Contributing to cash‑balance or defined‑benefit plans, deferring compensation and maximizing deductible retirement contributions can reduce AGI and therefore Washington taxable income. Bunching charitable contributions into donor‑advised funds (up to the $100 000 cap) can further lower the taxable base.
- Pass‑through entity tax election (PTE). SB 6346 allows partnerships, LLCs and S‑corporations to elect to pay the 9.9 % tax at the entity level, with owners receiving a credit for the tax paid. Because entity‑level taxes are deductible for federal purposes, the PTE election can reduce the effective state tax rate from 9.9 % to around 6.2 % for those in the 37 % federal bracket. Business owners should model the election annually.
- Domicile and residency planning. Changing domicile to another state (e.g., Florida or Texas) before 2028 can avoid the tax, but the Washington Department of Revenue aggressively audits domicile changes. To survive scrutiny, a move must include severing ties with Washington (selling or leasing your principal residence, moving family and personal property, obtaining out‑of‑state licenses and registrations, and spending fewer than 31 days per year in Washington). Half‑measures or “snowbird” arrangements will likely fail.
Real examples
To understand the impact, consider the following simplified examples. Household AGI over $1 million is taxed at 9.9 %.
| Household AGI | 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, the $1 million deduction is shared, so two earners each making $600 000 would jointly owe tax on $200 000 of income. Part‑year residents pro‑rate the deduction based on Washington‑source income.
Common mistakes
- Assuming existing retirement accounts solve the problem. Maxing out a 401(k) reduces income by only $23,000–$30,000 per year. High earners need bigger levers (cash‑balance plans, deferred compensation, QSBS).
- Confusing capital‑gains and income taxes. Washington’s capital‑gains tax (7 % on gains above $250 000) continues to apply; SB 6346 provides a credit for capital‑gains tax paid. Gains above $1 million are taxed at 9.9 % effective January 1 2028, separate from the income tax starting in 2028.
- Underestimating the $1 million threshold. The deduction is per household and indexes with inflation only after 2029. A business sale or bonus can push you over the threshold.
- Poor domicile planning. Simply renting an apartment in another state while retaining a Washington home will not succeed. Domicile planning requires clear facts and documentation.
What happens next
SB 6346 awaits the governor’s signature as of March 2026 and will likely face constitutional challenges and a potential repeal initiative on the November 2026 ballot. Nonetheless, the tax is scheduled to take effect January 1 2028, with first payments due in 2029. The law declares the tax “necessary for the support of state government,” attempting to exempt it from a referendum. High earners should plan under the assumption that the tax will survive litigation, while monitoring developments.
Next steps
The planning window is short. 2026 and 2027 are the years when founders, investors and high‑income professionals can act—whether by accelerating income, qualifying for QSBS, electing the PTE or moving. To dive deeper into the specific rules, timelines and planning checklists, see our Washington State Tax Planning Guide for High Earners. If you need help applying these strategies to your situation, feel free to book a call.
