Washington lawmakers are considering a major change to the state tax system: a new tax aimed squarely at very high earners, often referred to as a “millionaires’ tax.” The proposal appears in House Bill 2724 (2026) and would raise billions of dollars annually for education, health care, and tax relief — while reopening a long-running debate about whether Washington can tax income at all.
Here’s a plain-language explanation of what the bill does, who it affects, and why its legality is already being questioned.
What the Bill Does (In Simple Terms)
House Bill 2724 would impose a 9.9% tax on income above $1 million per year for individuals.
Key points:
- The first $1 million is exempt.
If you earn less than $1 million in a year, you owe nothing under this tax. - Only income above $1 million is taxed.
For example, someone with $1.3 million of taxable income would pay 9.9% on the $300,000 above the threshold. - The $1 million threshold is indexed for inflation.
Over time, the exemption would increase to keep pace with rising prices. - The tax applies beginning in 2028, with payments due in 2029.
Lawmakers estimate that roughly the top 0.5% of households would be affected.
Who Pays — and Who Doesn’t
People who would pay:
- Washington residents with more than $1 million in annual income
- Nonresidents with more than $1 million of Washington-sourced income
- Part-year residents, with income prorated based on time in the state
People who would not pay:
- Anyone earning under $1 million
- Most retirees
- Most business owners
- Nearly all wage earners
In practice, the tax is designed to apply to a very small group of extremely high-income individuals.
Important Income Exemptions
The bill also excludes several major categories of income:
- Home sales and other real estate sales
Gains from selling residential or other real property are excluded. - Sales of qualified family-owned small businesses
- Long-term capital gains
These are already subject to Washington’s separate capital gains excise tax and are removed from the income base here to avoid double taxation. - Credits for other Washington taxes paid
Credits are available for:- Washington capital gains tax
- Business & Occupation (B&O) tax
- Certain pass-through entity taxes
- Charitable contributions
Up to $50,000 per year can be deducted.
The structure is intentionally narrow and heavily adjusted, not a broad-based tax on ordinary earnings.
How “Washington Taxable Income” Is Calculated
The bill borrows heavily from federal tax concepts:
- Start with federal adjusted gross income (AGI)
- Subtract long-term capital gains
- Add back certain losses and tax-exempt interest
- Apply Washington-specific deductions
- Subtract the $1 million standard deduction
- Apply the 9.9% tax to what remains
If nothing remains after deductions, no tax is due.
What the Revenue Is Intended to Fund
Revenue from the tax would go primarily to Washington’s general fund and be used for:
- K–12 education
- Health care and long-term care
- Higher education
- Human services
The bill also pairs the new tax with tax relief measures, including:
- Expansion of the Working Families Tax Credit
- Increased small business B&O tax credits
- Sales-tax exemptions for essential hygiene products
The stated goal is to make Washington’s tax system less regressive by shifting some burden away from consumption taxes.
The Constitutional Question Everyone Is Asking
Washington’s constitution has long been interpreted to prohibit a graduated income tax. Courts have historically treated income as a form of property, which must be taxed uniformly — something a 9.9% tax on only high earners plainly is not.
So how does this bill try to get around that?
The Legislature’s Theory
House Bill 2724 does not label the new tax an “income tax.” Instead, it describes it as a tax on the “receipt of Washington taxable income.”
The theory is that this makes the tax an excise tax — a tax on an event or activity — rather than a direct tax on income as property.
This mirrors the argument that recently succeeded in court for Washington’s capital gains tax, which the state supreme court upheld as an excise tax on transactions rather than income itself.
The Initiative 2111 Issue
In 2024, Washington enacted Initiative 2111, which explicitly prohibits state and local taxes on personal income.
House Bill 2724 addresses this directly by carving itself out of that prohibition, stating that the income-tax ban does not apply to this new tax.
Whether that statutory carve-out is legally sufficient is an open question.
Is This a Constitutional End-Run?
That is the core issue — and the one that will almost certainly be litigated.
Supporters argue:
- The tax is narrowly targeted
- It is structured as an excise, not a property tax
- It follows recent court precedent
- It funds essential public services while reducing regressive taxes
Critics argue:
- The tax walks, talks, and calculates like an income tax
- Labeling it an “excise” does not change its substance
- It conflicts with both voter intent and constitutional limits
- It sets the stage for broader income taxation in the future
If enacted, the bill is virtually guaranteed to face immediate legal challenges — and possibly a voter referendum as well.
Bottom Line
House Bill 2724 would represent the most significant change to Washington’s tax system in decades. It is carefully designed, narrowly targeted, and politically consequential. Whether it is constitutional — or merely clever — will be decided not in committee rooms, but in the courts and potentially at the ballot box.
