Does Washington have a state income tax?
Washington has no broad personal income tax in 2026 or 2027. Its separate capital gains excise tax already applies to certain long-term gains—that tax is live today and is distinct from the 2028 income tax. Under enacted ESSB 6346, the new individual income tax begins January 1, 2028, at 9.9% of Washington taxable income after state adjustments and deductions.
The initial standard deduction is $1 million per individual, with spouses and state-registered domestic partners sharing one $1 million deduction regardless of filing status. Federal adjusted gross income is the starting point, not the final taxable amount. The governing law is chapter 82A.04 RCW.
This overview describes the enacted framework. For repeal and litigation developments that could change it, see the Initiative 645 status tracker (certified for the November 3, 2026 ballot; ESSB 6346 remains enacted until voters or a court change it). For transaction planning, start with the Washington Founder Exit Map.
Model the numbers: Washington income tax calculator (2028 / 9.9%) — estimates the 2028 income tax and capital gains coordination for high earners and founders (not a paycheck tool).
How the new income tax works
Calculate Washington base income using the applicable allocation rules and state additions and subtractions. Apply deductions to reach Washington taxable income, multiply by 9.9%, and then apply available credits. Residents, part-year residents, and nonresidents can have different results.
- Wages and business income: taxable compensation and pass-through income can enter the calculation. A business owner can have taxable pass-through income without receiving an equivalent cash distribution.
- Shared deduction: spouses and registered domestic partners share the initial $1 million deduction, including when filing separately. People who are not residents for the entire year must apply the statutory deduction adjustment.
- Timing: the tax begins with 2028 income. For calendar-year taxpayers, the first annual return and payment are due in April 2029 under the statutory filing rules. Estimated payments are not required before July 1, 2029.
See the standard deduction, its adjustment for nonresidents, and annual filing and payment rules. The founder’s planning guide covers equity compensation and other transaction issues.
How capital gains fit
Washington’s existing capital gains tax applies at 7% on the first $1 million of taxable Washington capital gains and 9.9% above that amount, after applicable deductions. Direct real-estate sales and certain retirement-account assets are exempt. See the capital gains guide for annual deduction amounts, exemptions, and filing rules.
The new income tax has a separate long-term-gain adjustment: it removes federal long-term gains and adds back federal long-term losses included in adjusted gross income. Only for taxpayers owing Washington capital gains tax, it then adds Washington capital gains subject to that tax plus the capital gains standard deduction, excluding gains and losses from sales exempt under RCW 82.87.050. RCW 82A.04.210.
A nonrefundable credit for the same year’s Washington capital gains tax reduces the income tax, limited to the income tax otherwise owed. Unused credit cannot be carried forward or backward. Calculate both taxes and the credit; simply adding their top rates gives the wrong answer. See the credit statute and the worked comparison.
Simple income-tax examples
These examples assume full-year Washington residents in 2028, Washington base income equal to federal AGI, the full $1 million standard deduction, and no other deductions or credits. Income is combined for spouses and registered domestic partners.
| Income under these assumptions | Taxable amount | Washington income tax |
|---|---|---|
| $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 |
Two spouses earning $600,000 each would therefore owe $19,800 under these assumptions. These figures do not model the capital gains interaction, an entity-level election, or a midyear move. Use the Washington income tax calculator (2028 / 9.9%) for a starting estimate and check its assumptions against your situation.
QSBS and pass-through businesses
Gain excluded federally under Section 1202 generally stays outside Washington’s income and capital gains tax bases. The exclusion applies only to qualifying gain within the available limit; a taxable remainder is not exempt merely because the stock qualifies as QSBS. Acquisition dates, holding periods, and other eligibility requirements matter. See QSBS and Washington taxes.
Eligible partnerships, including LLCs taxed as partnerships, and S corporations may elect to pay income tax at the entity level. A potential federal deduction does not reduce the Washington tax payment itself. Model the entity’s tax base, owners’ nonrefundable credits, state addbacks, and federal consequences together. Do not assume each owner’s $1 million deduction automatically reduces the entity’s base. See the pass-through analysis.
Retirement income and trusts
The new law does not create a general retirement-income exclusion for Washington residents. Taxable IRA and 401(k) distributions, pensions, and taxable Social Security can enter federal AGI and the Washington calculation. Qualified Roth distributions, recovery of after-tax basis, and qualifying rollovers generally stay outside federal AGI.
For a recipient who is neither resident nor domiciled in Washington, 4 U.S.C. §114 protects the retirement income specified in that statute. A former Washington job does not override that protection, but not every deferred-compensation payment qualifies. See the retirement-income guide.
The statute also has a specific income-addback rule for certain incomplete-gift nongrantor trusts. A trust’s location, age, or stated non-tax purpose does not by itself establish an exception. Review the actual structure under the trust-planning rules.
Planning before 2028
- Recognition dates: income recognized before 2028 falls outside the new income tax, but federal and existing capital gains taxes can still apply. A 2027 closing does not necessarily put later installments, earnouts, or escrow releases into 2027 income. See installment sales.
- Deductions: retirement-plan deductions depend on eligibility, limits, and funding commitments. A federal charitable deduction does not automatically produce a Washington deduction; the state has separate requirements and limits.
- Relocation: establish and document the actual domicile change, then separately examine statutory residency, the move year, and continuing Washington-source income. See the relocation guide.
Comparing states
Compare the income you expect to receive, the applicable exclusions and deductions, and where you will actually live and work. A top-rate comparison alone misses the shared Washington deduction, the capital gains rules, and differences in QSBS treatment. For more detail, see Washington versus California and Washington, Oregon, and Nevada.
Discuss your situation
To review a sale, business structure, or move, book a 20-minute call with Joe Wallin or email wallin@carneylaw.com.
Last revised: September 17, 2026. General educational information, not legal or tax advice.
