Washington’s legislature is currently debating a so‑called “millionaire’s tax” that could reshape the tax landscape for high‑income residents. This article explains what the proposal entails, how it might affect founders and investors, and why it’s generating so much attention.
What’s Being Proposed?
Lawmakers are considering a 9.9 % state income tax on adjusted gross income above $1 million (Washington State Democrats introduce Millionaires Tax). Households with incomes below that threshold would owe nothing, meaning the new levy would apply to less than one percent of Washingtonians (Washington State Democrats introduce Millionaires Tax). Supporters estimate the tax could raise about $3.7 billion per year to fund public education, healthcare, child‑care, and other services (Washington State Democrats introduce Millionaires Tax).
How Would This Affect High‑Earners?
Analysts warn that combining the proposed millionaire tax with existing state and local levies could push the top effective rate for some Seattle residents above 18 % (Washington Income Tax Proposal Would Yield 18% Top Rate). That figure reflects:
- The new 9.9 % state income tax.
- Existing payroll and city taxes, including the Seattle JumpStart tax and the long‑term care insurance tax (Washington Income Tax Proposal Would Yield 18% Top Rate).
- Federal income tax rates.
Because the proposal is tied to adjusted gross income, it would affect wages, bonuses, vested restricted stock units (RSUs) and other compensation for high‑income earners. The top marginal rate could end up higher in Seattle than in New York City (Washington Income Tax Proposal Would Yield 18% Top Rate), which is why tech workers and startup founders with equity compensation should pay close attention to the bill’s progress.
Legal and Political Context
Washington’s constitution has historically been interpreted to prohibit a graduated income tax (Washington State Mulls a Millionaire’s Tax). Supporters of the millionaire tax argue that the state’s current tax structure is regressive and inadequate to meet funding needs (Washington State Mulls a Millionaire’s Tax), while opponents point to likely legal challenges. If enacted, the new tax may not take effect until several years out, as court battles and possible ballot measures could delay implementation.
Implications for Founders and Investors
If you run a startup, hold stock options, or have RSUs vesting in the coming years, a millionaire tax could alter your after‑tax income significantly. Key considerations include:
- Equity compensation timing: Large RSU or option exercises could push you over the $1 million threshold, potentially subjecting part of your income to the 9.9 % state tax.
- Future fundraising or exits: Founders selling shares during a liquidity event could face additional state tax, affecting net proceeds.
- Relocation considerations: High combined tax rates might influence decisions to domicile or expand outside Washington.
Although the tax is not yet law, now is a good time to consult with a tax professional about timing strategies and potential mitigation options.
Staying Informed
The debate over the millionaire tax is evolving rapidly. For background and analysis, see the Washington Senate Democrats’ introduction of the tax Washington State Democrats introduce Millionaires Tax and commentary from the Tax Foundation on potential combined rates (Washington Income Tax Proposal Would Yield 18% Top Rate). We’ll continue monitoring legislative developments and court rulings to keep you informed.
If you have questions about how the proposed millionaire tax could impact your business or personal finances, feel free to reach out. Understanding the nuances now can help you make better strategic decisions in the futurio
