Washington’s ESSB 6346 adds a 9.9% state income tax on household income above $1 million starting January 1, 2028. For executives paid through salary, bonuses, deferred compensation, and equity, the combined federal and state exposure after 2027 demands a plan built before that date.
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Let us assume $1,500,000 in total compensation, including salary, bonus, and deferred compensation payout, is recognized in 2028. At a 37% federal rate on the full amount, plus Washington's 9.9% on the $500,000 above the $1 million threshold, the combined tax exposure reaches approximately $703,500.
With Pre-2028 Income Acceleration Strategy
Let us assume the same $1,500,000 in compensation is structured so that deferred payouts and discretionary bonuses are recognized before January 1, 2028, when Washington has no income tax. Federal tax on the full amount at 37% totals approximately $555,000. Washington adds nothing. Total savings versus the unplanned scenario: $148,500.
Let us assume total compensation recognition of $1,500,000. Washington 9.9% millionaire tax applies to household income above $1 million beginning January 1, 2028.
| Metric | Unplanned Recognition in 2028 or Later | Pre-2028 Acceleration and Deferral Strategy |
|---|---|---|
| Total Compensation Recognized | $1,500,000 | $1,500,000 |
| Federal Tax Rate | 37% | 37% |
| Federal Tax Due | $555,000 | $555,000 |
| Washington Millionaire Tax (9.9%) | $49,500 on $500,000 above threshold | $0 (recognition completed before 2028) |
| Total Combined Tax | $703,500 | $555,000 |
| Section 409A Compliance Required | Yes (deferred comp rules apply) | Yes (acceleration must follow 409A rules) |
Estimated Washington Tax Savings from Pre-2028 Income Planning
$148,500
Savings = WA millionaire tax rate (9.9%) × compensation above $1M threshold; actual savings depend on total household income, compensation type, and Section 409A permissibility of acceleration
ESSB 6346 imposes a 9.9% tax on household income above $1 million starting January 1, 2028, using federal AGI as its base. Every component of an executive compensation package interacts differently with that base. Call your advisor before your next compensation review. Four scenarios require careful attention before you proceed.
Deferred compensation governed by Section 409A cannot be accelerated at will. Changing the timing of a payout to avoid Washington's 2028 tax requires a permissible trigger under 409A or a compliant plan amendment made well in advance. Accelerating outside 409A rules creates immediate federal income recognition plus a 20% excise tax on the full deferred amount, which would cost far more than the Washington tax it was intended to avoid.
Bonuses that are not subject to Section 409A can be timed more flexibly. A discretionary bonus paid or made available to an executive before January 1, 2028 is recognized as income in a year when Washington has no state income tax. Executives expecting large performance bonuses in 2027 or 2028 should work with their employer and advisor to evaluate whether accelerating payment into 2027 is permissible and tax-efficient.
Restricted stock units vest as ordinary income at the fair market value on the vesting date. That income enters federal AGI and under ESSB 6346 flows into Washington taxable income. Executives with large RSU grants scheduled to vest after 2027 should model the Washington millionaire tax exposure by vesting year and consider whether any employer-approved acceleration of vesting into pre-2028 years is available.
The $1 million Washington threshold is a household income test, not a per-compensation-type test. An executive with a $900,000 base salary will breach the threshold on just $100,000 of additional income, meaning any bonus, RSU vesting, or stock option exercise above that amount is subject to 9.9%. Total household income modeling across all compensation types is essential before any single planning decision is made in isolation.
Not every compensation event can be timed or structured to avoid Washington’s millionaire tax. The type of compensation, its governing rules, and your total household income all determine what is possible. Under ESSB 6346, completing these steps before 2028 can materially reduce your state tax exposure.
Pre-2028 Planning Requirements
5 / 5 Complete
Model Total Household Income by Year Through 2030
Washington’s $1 million threshold applies to household income, not individual compensation. Build a multi-year income model that includes salary, projected bonuses, RSU vesting schedules, deferred compensation payouts, and any investment income to identify which years are at risk of breaching the threshold after 2027.
Audit All Deferred Compensation Plans for Section 409A Flexibility
Review each deferred compensation arrangement to determine what acceleration or timing changes are permitted under Section 409A. Any plan amendment intended to shift recognition into a pre-2028 year must be made while complying with 409A’s strict anti-acceleration rules and timing requirements for plan modifications.
Identify Discretionary Bonus and Incentive Pay Eligible for Pre-2028 Acceleration
Bonuses outside the scope of Section 409A can be accelerated or paid early without the same restrictions. Work with your employer to determine which bonuses are discretionary and whether paying them before January 1, 2028 is commercially feasible, consistent with employment agreements, and tax-efficient relative to your projected income in both years.
Review RSU and Stock Option Vesting Schedules for Post-2027 Exposure
Map every equity grant by type, vesting date, and expected income value at vesting. RSU income vesting after 2027 enters federal AGI and Washington base income. ISO exercises require separate analysis given their different treatment under ESSB 6346. Stock option exercises planned for 2028 or later should be reconsidered in light of the additional state tax cost.
Confirm Washington Capital Gains Excise Tax Credit Applicability
ESSB 6346 provides a 100% credit against the millionaire tax for Washington capital gains excise taxes already paid in the same year. Executives who expect both capital gains events and ordinary income above $1 million should model the interaction between the two taxes to avoid double-counting exposure and to capture the credit where it applies.
| Compensation Type | Enters WA Base Income After 2027 | Pre-2028 Planning Available |
| Base salary | Yes, ordinary income enters federal AGI | Limited; negotiate structure before 2028 |
| Discretionary bonus | Yes, if paid in 2028 or later | Yes, can be accelerated into 2027 if not subject to 409A |
| Deferred compensation payout | Yes, ordinary income on distribution | Limited by Section 409A; requires compliant plan amendment |
| RSU vesting income | Yes, FMV at vesting is ordinary income | Possible with employer-approved vesting acceleration |
| ISO exercise and hold | No, spread does not enter federal AGI (no 409A add-back in ESSB 6346) | Exercise and hold strategy remains favorable after 2028 |
| NSO exercise spread | Yes, ordinary income enters federal AGI | Yes, accelerate exercises into pre-2028 years |
The planning window before January 1, 2028 is the most valuable tool available to Washington executives. Once the millionaire tax takes effect, most compensation already committed to future years cannot be restructured without significant cost or legal risk.
Any compensation that enters federal adjusted gross income is subject to Washington’s ESSB 6346 on amounts above $1 million starting in 2028. This includes base salary, bonuses, deferred compensation payouts, RSU vesting income, and NSO exercise spreads. ISO exercise and hold is the primary exception, as the spread does not enter federal AGI under a regular tax calculation.
Section 409A strictly limits the ability to accelerate deferred compensation. Acceleration outside a permissible 409A trigger results in immediate federal income recognition plus a 20% excise tax on the full deferred balance, which would typically exceed the Washington tax being avoided. Any plan amendment to shift recognition must be made in advance and must comply with 409A’s specific timing and anti-acceleration rules.
The threshold under ESSB 6346 applies to household income, meaning it includes the combined income of you and your spouse or domestic partner. An executive with $800,000 in personal compensation and a spouse with $300,000 in income would have $1,100,000 in household income, with $100,000 subject to the 9.9% Washington rate. Total household income modeling is essential before making any single compensation planning decision.
RSU vesting income is ordinary income that enters federal AGI in the vesting year, making it fully subject to Washington’s 9.9% millionaire tax on amounts above the threshold after 2027. NSO exercise spreads are treated the same way. ISO exercise and hold is the exception: the spread stays outside federal AGI under a regular tax calculation and therefore outside Washington base income, provided the shares are held without a disqualifying disposition.
Yes. ESSB 6346 provides a 100% tax credit against the millionaire tax for Washington capital gains excise taxes already paid in the same year, so an executive who owes both taxes on the same income will generally not pay both in full. The statute also provides a credit for B&O taxes paid by pass-through entities electing to pay at the entity level. Modeling both credits against projected millionaire tax liability is a necessary step in any complete planning analysis.
Disclaimer: This is not tax advice, and it is recommended to consult a tax professional, as every tax situation is unique.
