The Overview (TL;DR)
- Implementation Date: Washington’s new 9.9% income tax does not take effect until January 1, 2028.
- The Threshold: Only individuals or households with a Washington taxable income exceeding $1 million are subject to the levy.
- The Planning Window: 2026 and 2027 are “tax-free” years at the state level, providing a critical window to accelerate income and restructure assets.
- Federal Context: Recent federal changes under the “One Big Beautiful Bill” (OB3) have increased the federal estate tax exemption to $15 million, creating a unique intersection for wealth transfer planning.
As tax season 2026 begins, high-net-worth individuals (HNWIs) in the Evergreen State are facing a dual reality. While you are currently navigating the new federal landscape established by the One Big Beautiful Bill Act (OBBBA), including the permanent $15 million individual estate tax exemption and the temporary $40,000 SALT deduction cap, there is a localized storm on the horizon.
On March 30, 2026, Governor Bob Ferguson signed ESSB 6346, officially enacting Washington’s first personal income tax. For a state that has long defined itself by the absence of such a levy, this represents a notable shift. However, the legislation includes a two-year implementation delay. This “interim” period between now and 2028 is not a time for complacency; it is a permanent strategy window to shield your wealth before the 9.9% rate becomes the law of the land.
Does Washington State Have Income Tax in 2026?
The short answer is: Not yet. While the law is officially on the books, the statutory language of ESSB 6346 explicitly states that the tax applies to tax years beginning on or after January 1, 2028.
This means for your 2026 and 2027 filings, you remain exempt from state-level personal income tax. High earners should view these two years as a “safe harbor” to recognize income that would otherwise be hit with a nearly 10% surcharge starting in 2028.
The Mechanics of the “Millionaires’ Tax”
The new tax is a flat 9.9% on “Washington taxable income.” This is calculated starting with your federal Adjusted Gross Income (AGI) and applying a $1 million standard deduction.
- The Marriage Penalty: The $1 million deduction is per household. Married couples filing jointly do not receive a double deduction; they share the same $1 million threshold as a single filer.
- The Sourcing Rules: For residents, the tax applies to all income. For non-residents, it applies to Washington-source income, including wages for services performed in-state and income from Washington-based businesses.
- Excluded Income: Notably, gains from real estate transactions and qualified family-owned businesses are generally excluded from the income tax base to avoid overlap with other state taxes.
Leveraging the Planning Window: 3 Strategic Levers
To prepare for 2028, HNWIs should evaluate three primary strategies during the 2026–2027 window:
- Income Acceleration: Consider pulling forward bonuses, deferred compensation distributions, and the exercise of non-qualified stock options into the 2026 or 2027 tax years. Because there is no state income tax during this window, you can “lock in” a 0% state rate on these amounts.
- Roth Conversions: With the federal estate tax exemption now at $15 million ($30 million for couples) under OB3, 2026 is an ideal year for large Roth IRA conversions. You will pay federal tax now, but you avoid the 9.9% Washington tax that would apply to future required distributions if your income exceeds the $1 million threshold in retirement.
- Section 1202 (QSBS) Optimization: Qualified Small Business Stock (QSBS) remains one of the most powerful tools for founders. Since Section 1202 gains are excluded from federal AGI, they are also excluded from the Washington tax base.
Business Owner Alert: The PTET Election
Starting in 2028, Washington will introduce an optional Pass-Through Entity Tax (PTET). Partnerships and S corporations can elect to pay the 9.9% tax at the entity level. This allows the state tax to be fully deductible for federal purposes, effectively bypassing the federal SALT cap (currently $40,000 for those under the $500,000 MAGI phase-out).
Frequently Asked Questions
Does Washington State have income tax?
Currently, no. However, a 9.9% tax on income over $1 million was signed into law in March 2026. It is scheduled to take effect on January 1, 2028, with the first state tax returns due in April 2029.
Who is subject to the WA millionaires’ tax?
Any individual or household with a Washington taxable income exceeding $1 million. This includes residents (taxed on all income) and non-residents who derive income from Washington sources, such as in-state employment or business operations.
How can I avoid the new WA income tax?
Key strategies include accelerating income into 2026–2027, utilizing Section 1202 QSBS exclusions, or establishing a non-grantor trust. Some high earners may also consider changing their legal domicile to a non-tax state before the 2028 implementation date.
Bottom Line
The 2026–2027 window represents a unique, non-recurring opportunity for Washington’s high earners to restructure their finances. While legal challenges from groups like the Citizen Action Defense Fund are expected to reach the State Supreme Court, prudent planning assumes the 9.9% tax will proceed as scheduled in 2028. By coordinating your state strategy with the expanded federal benefits of the OB3, you can significantly mitigate the impact of this new regime.
Disclaimer: Tax laws are subject to change. This content is for educational purposes and does not constitute formal tax or legal advice. Always consult with a qualified tax professional regarding your specific situation before implementing any strategies.
Stop losing sleep over the “Millionaires’ Tax.”
At Tax Goddess, we have helped our clients save over $2 BILLION in taxes through proactive, expert-level strategic planning. The 2-year window for Washington HNWIs is closing fast. Don’t wait until 2028 to realize you could have saved hundreds of thousands in state levies.
