Washington's New 9.9% Income Tax: What High Earners Should Do Before 2028

Enacted-law planning: Washington’s 9.9% income tax is scheduled to begin January 1, 2028. Initiative 645 would expressly repeal that income tax if enacted. It does not expressly repeal chapter 82.87 RCW, but its broader prohibition raises a separate question about continued capital-gains-tax collection; the constitutional excise classification does not resolve the initiative’s statutory scope. See the tracker for ballot and litigation updates and our analysis of the initiative’s text. Plan under enacted law and model alternatives separately.

Income recognized before January 1, 2028 avoids the new tax; income recognized after may not. Most of the strategies below follow from that rule.

The rest of this guide is the framework behind that table. Each lever links to a deeper article, and the right combination depends entirely on your facts — think of this as the map, not the turn-by-turn directions.

First, know exactly what's coming

Two separate Washington taxes are now in play, and people constantly conflate them:

1. The capital gains tax (ESSB 5096; 9.9% tier added by SB 5813 in 2025) — already in effect. A 7% rate on long-term capital gains above the standard deduction, and a 9.9% tier on taxable gain over $1 million. This is not new in 2028; it's here now.
2. The 9.9% income tax (ESSB 6346) — effective January 1, 2028. It reaches income above a $1 million standard deduction. Because married couples and registered domestic partners share one $1 million deduction rather than getting one each, two-earner couples can cross it well below $2 million combined — the marriage penalty.

The interaction requires two calculations. Section 302 modifies the income-tax base, and §205 supplies a nonrefundable credit for the same year’s Washington capital-gains tax. Ignoring other credits, combined liability equals capital-gains tax plus any income tax remaining after that credit. It is not a second full tax added to the same gain. See the worked comparison.

New to ESSB 6346? For the full breakdown — who pays, what counts as income, the credits, the marriage penalty, and the constitutional challenge — start with the complete ESSB 6346 guide for founders and high earners.

Who this is not for

If your annual income is unlikely to exceed $1 million and you do not anticipate a major liquidity event, many of these strategies will have limited value for you. This guide is written for founders with a pending exit, high earners with concentrated equity, and high-net-worth individuals weighing large conversions or distributions.

Lever 1: Pull income into 2026–2027, before the rate exists

This is the highest-value category for most people, because it's the most directly tied to the deadline.

• Model a large private-company gain. Compare the sale’s ordinary-income and capital-gain components under the rules for each year, including deductions, other income, and credits. Earnouts can represent sale proceeds, interest, or compensation depending on the facts. The §205 credit does not make every sale timing-neutral, and gains in the capital-gains tax’s 7% band do not automatically acquire a 2.9-point additional tax in 2028. Calculate the household’s combined liability. See the private-company planning guide.
• Compare Roth-conversion years. A taxable conversion before 2028 precedes the new income tax, but its federal cost and your projected retirement withdrawals still matter. Qualified Roth distributions are tax-free; nonqualified withdrawals can have different treatment. The best year depends on the household’s numbers. See Roth conversions before 2028.
• Reconsider installment sales and deferral. The usual instinct is to spread gain over future years. Under a rising-rate regime, deferral can backfire — you may be pushing income into the 9.9% years. See installment sales and deferred compensation.
• Accelerate equity income deliberately. Exercise timing for options, and the recognition events on RSUs, are levers you partly control. See stock option exercise timing.

Lever 2: Lock in the exclusion — QSBS

Pulling income forward saves you a rate. Excluding it entirely is better. For founders and early investors, Section 1202 (QSBS) remains one of the most powerful tools on the board, because it can exclude some or all of the gain from both federal and potentially Washington taxation, depending on the circumstances.

• Confirm whether your shares and gain satisfy federal §1202. Under enacted law, the federally excluded portion stays outside both Washington tax bases; eligibility and the amount excluded are the questions to verify. See the Washington QSBS analysis.
• For eligible QSBS held more than six months, a §1045 election can defer qualifying gain if replacement QSBS is purchased within the 60-day statutory window and the other requirements are met. Check the applicable §1202 holding-period tier as well. See the rollover guide.

If there's any chance QSBS applies to you, review it first — mistakes here are difficult to correct after the fact.

Lever 3: Reduce your permanent footprint — structure

Some moves aren't one-time accelerations; they change your annual exposure going forward.

• Pass-through entity (PTE) election. For owners of S corps, partnerships, and LLCs, the PTE mechanics can change how business income is taxed at the owner level. See Washington's income tax and pass-through business income.
• Trust planning — with a clear-eyed view of the limits. Trusts can play a role, but Washington has anti-avoidance rules, and aggressive structures invite scrutiny. See trust planning under Washington's income tax.
• Estate planning changes too. A state income tax shifts the calculus on gifting, timing, and where assets sit. See estate planning before 2028.

Lever 4: Time charitable giving into 2028+ — a capped lever

ESSB 6346 §309 allows a deduction for qualifying §170 contributions claimed on the federal return, limited to $100,000 per individual or a combined $100,000 for spouses and registered domestic partners. The recipient must satisfy the Washington-directed-and-managed test incorporated from RCW 82.87.080; a national or local label alone does not establish eligibility. Before considering interactions with other deductions and credits, a fully usable $100,000 deduction reduces the 9.9% income tax by $9,900. Compare the actual federal and state benefit by year, including whether the capital-gains-tax credit already eliminates income tax. See charitable-giving strategies.

Lever 5: Evaluate a genuine domicile change

A genuine domicile change can affect a later stock sale, but it does not automatically end income-tax residency or eliminate Washington-source income. Review the sale date, statutory residency, part-year treatment, and each income item’s source. A new address alone does not establish the result.

• How to leave Washington's income tax
• The best states to relocate to
• Washington exit-tax planning before 2028
• Why passing the 30-day rule doesn't protect your stock sale

If you're going to relocate, do it properly and early — a partial move can create more audit risk than staying put.

The sequencing problem: 2026 vs. 2027 vs. 2028

The levers above interact, and the order in which you use them matters. Accelerate too much into one year and you stack your own income against yourself; spread it wrong and you walk into the 9.9% cliff. This is the part that genuinely requires a model of your specific situation. See cliff planning for 2026–2027.

The most common mistakes

• Assuming repeal will fix it. IP26-645 is on the November 3, 2026 ballot as Initiative 645, but a ballot measure is a possibility, not a plan. Plan for the law as written and adjust if voters repeal it.
• Deferring income on autopilot. The old reflex to push income to future years is now often exactly backwards.
• Treating the two taxes as one. The capital gains tax and the income tax are different, and the 2028 interaction needs its own analysis.
• Waiting until late 2027. The best moves — QSBS, domicile, a well-timed exit — take months to set up correctly. The window closes faster than it looks.

Who should act now

If any of these describe you, the planning window is open and the clock matters:

• A founder or early employee with a liquidity event likely in the next 24–36 months.
• A high earner with concentrated equity, large RSU vesting, or deferred comp landing around 2028.
• A retiree or high-net-worth individual weighing large Roth conversions or distributions.
• Anyone whose income is likely to cross $1 million in any year from 2028 on.

Start here

There is no generic right answer — the correct plan is the one built around your numbers, your timeline, and your tolerance for complexity. Once income is recognized, many opportunities disappear permanently. For some founders, a single timing decision between 2027 and 2028 can be worth hundreds of thousands — or millions — of dollars.

If you have a 2028-sized decision in front of you, Book a 20-minute call and we can map out your options.

This post is general information, not legal or tax advice, and does not create an attorney-client relationship. Washington's tax laws are evolving and subject to ongoing litigation; the right strategy depends on your specific facts. Consult qualified counsel before acting.