Washington’s new income tax doesn’t take effect until January 1, 2028, and no estimated payments are required before July 1, 2030 — §501(6) sets that floor for individuals, and §502(4)(d) sets the parallel floor for electing pass-through entities. The Department of Revenue hasn’t issued guidance on the mechanics yet. But Section 501 of ESSB 6346 makes clear that estimated payments will be required once the floor lifts, 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.)
This post is part of our Complete Guide to Washington's New Income Tax.
What the Statute Says
Section 501 of ESSB 6346 ties the estimated-payment system to the federal one: individuals subject to the tax must make estimated payments under rules aligned with federal estimated tax requirements, with the estimated amount calculated by annualizing the tax over the reporting period. The statute itself fixes the key parameters — the safe harbor, the underpayment penalty, and a dollar floor below which no estimated payments are required (all covered below). What it leaves to Department of Revenue rulemaking is the administrative layer: the precise quarterly due dates, the forms, and whether any wage withholding applies.
On penalties, the statute is specific — and not in the way a federal interest model would suggest. ESSB 6346 imposes a flat 5% penalty on substantially underpaid estimated tax. “Substantially underpaid” is defined in the statute: total estimated payments for the year came in under 80% of the actual annual tax due, and the shortfall is at least $5,000. It is a one-time 5% penalty on the deficiency, not interest accruing from each quarterly due date.
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
Washington’s statute aligns its estimated-payment rules with the federal ones, so the federal model is the right reference point. Under the federal system, estimated payments are due quarterly — April 15, June 15, September 15, and January 15 of the following year — with each payment covering roughly one-quarter of the annual liability. Washington’s exact due dates await DOR, but they will track this structure.
On the safe harbor, Washington didn’t leave the percentages open — it wrote them into the statute. You avoid the underpayment penalty if your estimated payments total at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller in your case. Note one difference from the federal rules: there is no 110% step-up for higher-income taxpayers — it is a flat 100% of the prior year’s liability.
There is a first-year wrinkle: because there is no Washington “prior year” liability the first time the tax applies, the 100%-of-prior-year prong isn’t available at the start, so you will be working off the 90%-of-current-year figure on projected income. Expect DOR transition guidance on this point; watch for it in 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 flow through federal AGI into Washington base income. Long-term capital gains are handled differently: the statute strips them out of federal AGI, then adds back the net long-term gains that are subject to Washington’s capital gains tax — with a credit for the capital gains tax paid on that same gain, so you aren’t taxed twice on the overlap. QSBS gain excluded under §1202 never enters federal AGI, so it never enters the Washington base at all. For a founder with a liquidity event, that interaction is the main event — don’t assume every dollar of gain is taxed at 9.9%.
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).
One threshold to keep in mind: no estimated payments are required for any year in which your annualized Washington tax liability is under $5,000 — roughly the tax on the first $50,000 of income above the $1 million exemption. Below that, you simply settle up on the annual return.
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 with K-1 income from multiple entities, and the entity-level tax is deductible federally without regard to the individual SALT cap. That cap matters here: OBBBA raised it to $40,000 for 2025–2029, but it phases down — 30% of modified AGI over $500,000 — to a $10,000 floor, which is where essentially everyone subject to this Washington tax (income over $1 million) lands. So the PTE election preserves a federal deduction these owners would otherwise lose almost entirely to the $10,000 floor.
§502(4)(d) makes this explicit: no entity-level estimated payments are required before July 1, 2030 — the same floor that applies to individual filers under §501(6).
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
The penalty for underpaying estimated tax is a flat 5% of the deficiency. It applies only when you are “substantially underpaid” — the statute’s test is that your total estimated payments for the year were under 80% of your actual annual tax and the shortfall is at least $5,000. Clear either side of that test — pay at least 80%, or fall short by less than $5,000 — and the 5% estimated-payment penalty doesn’t apply.
That is separate from what happens on the annual return itself: ordinary Washington interest and late-payment penalties apply to any tax still owed when you file, under DOR’s existing rules. So underpaying through the year exposes you to the flat 5% estimated-payment penalty, while underpaying what’s due at filing exposes you to standard interest and penalties on top.
You avoid the 5% penalty by meeting the safe harbor — getting estimated payments (plus any withholding) to 90% of the current year’s tax or 100% of the prior year’s. Because estimated payments don’t begin until July 1, 2030 and there is no Washington prior-year figure for the first year, you’ll be working off projected current-year income at the start. Expect some DOR transition relief, but don’t count on it; the safe play is to overpay early and true up at filing.
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. As a rough cut, take your projected Washington base income, subtract the $1 million standard deduction, multiply by 9.9%, and divide by four for quarterly payments. Treat that as a ceiling, not a precise figure: the base is not simply federal AGI — long-term capital gains come out and only the portion subject to Washington’s capital gains tax comes back in, you get a credit for the capital gains tax paid on that overlap, and the charitable deduction (up to $100,000) and other modifications adjust the number further. If much of your income is long-term gains or QSBS, the simple formula will substantially overstate what you owe.
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 framework is already set by statute — aligned to the federal model, with a 90%/100% safe harbor and a flat 5% penalty for substantial underpayment — even though DOR still has to fill in the administrative details. The bottom line is unchanged: if you owe the tax, you’ll pay it quarterly, and you’ll face a penalty if you fall short. 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
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- Washington's New Income Tax: What Founders, Investors, Athletes, and High Earners Need to Know
- Washington's New Income Tax: The Complete Guide
This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.
