Washington’s 2026 regular legislative session opens January 12 and runs just 60 days. That compressed calendar matters, because one of the most consequential proposals for founders, executives, and investors is already on the table: a proposed 9.9% state “millionaire’s tax” on income above $1 million, publicly supported by Governor Bob Ferguson and expected to be a central issue in Olympia this winter.
What’s being proposed
The proposal would impose a 9.9% tax on income above a $1 million threshold. While details will evolve, the stated policy goal is to generate several billion dollars annually and rebalance Washington’s tax structure, which currently relies heavily on sales and excise taxes rather than personal income taxes.
For founders and early‑stage executives, this is not an abstract policy debate. A state‑level tax on high income could directly affect:
- liquidity events (including secondary sales),
- compensation structures (bonuses, severance, deferred comp),
- timing decisions around exits, and
- residency and planning strategies for founders approaching a sale.
The constitutional and structural hurdles
Washington has a long history of resisting graduated income taxes, rooted in constitutional interpretations and repeated voter rejections. Any proposal that looks like a traditional income tax faces legal risk. That is why much of the real work will happen not just in public hearings, but in how the tax is drafted and characterized under existing law.
Even if enacted, implementation would likely be delayed, and litigation is almost guaranteed. From a planning standpoint, uncertainty is the operative word.
Why this matters for startups now
Founders often assume state tax changes are “later problems.” That is a mistake. The most effective tax planning for a startup exit often happens years before liquidity, not months before closing. Changes like this should prompt founders to revisit:
- entity structure and jurisdictional choices,
- equity compensation design,
- QSBS planning assumptions,
- relocation timing (both personal and corporate), and
- how future income may be characterized for state purposes.
This is especially true for Washington-based companies with founders approaching scale or late‑stage financing.
What to expect during session
The 60-day session forces speed. If this proposal advances, expect rapid amendments, intense lobbying, and parallel legal analysis. The Washington State Legislature will be under pressure to reconcile revenue needs, constitutional constraints, and economic competitiveness arguments in a very short window.
Practical takeaway
Whether or not this proposal ultimately passes, it is a signal. Washington is actively exploring new ways to tax high earners. Founders, executives, and investors should treat that signal as a prompt to update planning models now, not after a term sheet or LOI is signed.
