Washington has long been known as a state with no personal income tax. That changed on March 30, 2026, when Governor Bob Ferguson signed Senate Bill 6346 into law, introducing a 9.9% tax on Washington taxable income above $1 million. If you are a high earner living or working in Washington, or you have business or investment ties to the state, this is the moment to start planning, not the moment the tax takes effect.
What Is the Washington Millionaire’s Tax?
SB 6346, commonly called the Washington millionaire’s tax, imposes a flat 9.9% rate on Washington taxable income exceeding $1 million per household. The tax starts from federal adjusted gross income, applies a $1 million standard deduction shared by married couples and domestic partners rather than doubled, and adjusts for specific items such as capital gains already taxed under Washington’s separate capital gains excise tax and certain charitable deductions.
The tax takes effect for income earned starting January 1, 2028, with the first returns and payments due in 2029. It is separate from Washington’s existing capital gains excise tax, which was enacted in 2021 and has applied to certain long-term capital gains above a statutory exemption amount, adjusted annually for inflation, since transactions occurring on or after January 1, 2022. Since January 1, 2025, that capital gains tax has also used a tiered structure: a 7% rate applies to gains up to $1 million, and an additional 2.9% applies to the portion of gains above $1 million, for a combined 9.9% rate at the top tier. Because both the capital gains tax and the new millionaire’s tax reach 9.9% at a $1 million threshold, it is worth being precise about which tax applies to which type of income when modeling your exposure.
Is the Tax Certain to Take Effect?
Not entirely, and this matters for how you plan. While SB 6346 is signed law, its path to the 2028 effective date is not guaranteed.
A lawsuit is currently pending that argues the millionaire’s tax violates the Washington state constitution. If that challenge succeeds, the tax could be struck down before it ever applies. Separately, opponents attempted to force a public referendum on the law, but the Washington Supreme Court rejected that effort in May 2026, ruling the tax is exempt from the referendum process because the legislature declared it necessary for the support of state government. A different path remains open, however: a citizen ballot initiative to repeal SB 6346 and prohibit personal income taxes in Washington more broadly has been gathering signatures, with organizers aiming for the November 2026 general election ballot.
None of this changes the strategies below. If anything, the uncertainty is a reason to build flexibility into your plan rather than wait for a final resolution, since the window between now and January 1, 2028 is exactly when most of these strategies need to be put in place.
Who Does This Tax Actually Affect?
Based on legislative estimates, the millionaire’s tax is projected to apply to fewer than 0.5% of Washington households, roughly 20,000 filers statewide. That said, the definition of who is affected is broader than many people assume.
- Washington residents with taxable income above $1 million in a given year.
- Part-year residents, who allocate income between their Washington residency and nonresidency periods, counting full adjusted gross income during residency months and only Washington-source income during the rest of the year.
- Nonresidents who may still owe the tax on income treated as Washington taxable income under the sourcing and apportionment rules established by SB 6346, which allocate wages, business income, and other compensation based on factors like days worked in Washington rather than a simple presence-or-absence test.
- Business owners and pass-through entity owners, since income allocated through K-1s from partnerships, LLCs, and S corporations counts toward the threshold.
- Executives and equity holders, particularly those with concentrated income years from RSU vesting, stock option exercises, or liquidity events.
If your household income fluctuates year to year, a single high-income year, such as one involving a business sale or a large equity event, could trigger the tax even if your typical annual income falls well below $1 million.
Key Factors When Calculating the Tax
The 9.9% rate itself is straightforward, but several moving parts determine what actually counts as taxable income under this law. Before estimating your exposure, it helps to understand the variables that shape the final number.
Starting point
The calculation begins with federal adjusted gross income, not gross wages or net worth. Income that never appears on your federal return generally does not enter the calculation either.
Standard deduction
A flat $1 million deduction applies per household, regardless of filing status. Married couples and domestic partners do not receive a combined $2 million exemption.
Capital gains treatment
Gains already taxed under Washington’s separate capital gains excise tax are adjusted for in this calculation to avoid double taxation on the same dollars.
Charitable deductions
Certain charitable contributions reduce Washington taxable income, which is part of why charitable planning is included among the strategies below.
Income sourcing rules
For nonresidents and part-year residents, only income sourced to Washington counts toward the threshold, which makes accurate income sourcing and documentation especially important.
Pass-through entity income
K-1 income from partnerships, LLCs, and S corporations flows through to the individual level unless the entity makes the PTET election described below.
Inflation adjustments
The $1 million standard deduction is set to be indexed for inflation on a recurring basis starting in 2029, meaning the dollar figure that triggers the tax will shift in future years rather than stay fixed at $1 million indefinitely.
How the Tax Is Calculated
Washington taxable income is built from federal adjusted gross income, then reduced by the $1 million standard deduction. The remaining amount is taxed at 9.9%. A household earning $1,000,500 in Washington taxable income, for example, would owe tax on only the $500 above the deduction, not the full amount.
The legislation also includes a pass-through entity tax, or PTET, election beginning January 1, 2028. This allows a qualifying partnership, LLC, or S corporation to elect to pay the millionaire’s tax at the entity level on behalf of its owners, rather than passing the liability through to each individual’s personal return. The election must be made annually by June 15 of the taxable year and is irrevocable once made.
7 Legal Tax Planning Strategies to Consider
The effective date is still a few years away, but the strategies below generally require lead time to implement correctly. Waiting until 2027 or 2028 limits your options considerably.
1. Review Your Residency and Domicile Status
Because the tax applies to Washington-source income regardless of where you live, simply moving out of state does not automatically remove you from its reach if you retain business interests, rental property, or other income sources connected to Washington. If reducing Washington-source income is part of your plan, a thorough domicile review can clarify how your specific income streams would be treated under the new law.
2. Model Your Income Timing Around the 2028 Effective Date
Because the tax applies to income earned starting January 1, 2028, income recognized before that date is not subject to it. For business owners, executives, or anyone anticipating a liquidity event, this makes the next two years a meaningful window to evaluate whether accelerating a business sale or other liquidity event makes sense given your broader financial picture.
3. Evaluate the Pass-Through Entity Tax Election
If you own a business structured as a partnership, LLC, or S corporation, the PTET election could shift how the millionaire’s tax liability is calculated and potentially provide federal deduction benefits, since entity-level state tax payments may be deductible in ways that personal state tax payments are not under current federal rules. This decision needs to be made annually and is irrevocable, so it deserves a full analysis before each filing deadline.
4. Structure Equity Compensation and Liquidity Events Carefully
RSU vesting schedules, ISO exercises, and business sale structures all affect when and how much income lands in a single tax year. Coordinating RSU and stock option timing with other deductions and elections can reduce how much income falls above the $1 million threshold in any one year.
5. Increase Charitable Giving in High-Income Years
Since the millionaire’s tax calculation adjusts for certain charitable deductions, larger charitable contributions in a high-income year, whether through direct giving, donor-advised funds, or a charitable remainder trust, can help offset taxable income in the years the tax applies.
6. Coordinate Retirement Account Contributions and Distributions
Maximizing contributions to tax-deferred retirement accounts in years with high Washington taxable income, and carefully timing required minimum distributions in retirement, can help manage which years your income crosses the $1 million threshold.
7. Revisit Your Trust and Estate Planning Structure
For high-net-worth households, the type of trust holding investment or business assets can affect how income is sourced and taxed. Reviewing your existing structures, including whether a dynasty trust fits your multi-generational goals, can help align your estate strategy with the new tax landscape.
How Capital Tax Can Help
Planning around a tax that does not take effect for a few years can feel premature, but the strategies that make the biggest difference, residency changes, entity elections, and trust restructuring, all take time to implement correctly. Waiting until 2027 or 2028 leaves little room to act.
Our CPAs work with executives, business owners, and equity holders across Washington and nationwide to build proactive plans around exactly this kind of legislative change. Rather than reacting once a tax bill arrives, we help clients model their exposure now, evaluate which strategies apply to their specific income sources, and put a plan in place well ahead of the 2028 effective date. If you want to see the fuller range of Washington-specific strategies we cover, our Washington tax planning overview walks through options for residency, equity compensation, business sales, and more.
Every household’s mix of income, business interests, and long-term goals is different, and a plan that works well for a business owner weighing a 2027 sale looks very different from one built around a multi-generational trust. A conversation with a CPA who understands both the mechanics of SB 6346 and your specific financial picture is the most reliable way to know which of these strategies actually apply to you.
Frequently Asked Questions
Could the tax be struck down or repealed before it takes effect?
It’s possible. A lawsuit challenging the tax’s constitutionality is currently pending, and a citizen initiative to repeal the law has been gathering signatures for a possible November 2026 ballot vote. A separate attempt to force a referendum was already rejected by the Washington Supreme Court. Given this uncertainty, most CPAs recommend planning as though the tax will take effect while staying flexible, rather than waiting for a final legal outcome.
Does the millionaire’s tax apply if I move out of Washington before 2028?
It depends on whether you retain Washington-source income. The tax applies to residents, part-year residents, and nonresidents with Washington-source income, so business interests, rental property, or other in-state income could still trigger it even after you relocate.
Is this the same as Washington’s capital gains tax?
No. Washington’s capital gains excise tax has applied to certain long-term capital gains above an inflation-adjusted exemption amount since transactions occurring on or after January 1, 2022, and since January 1, 2025, it has used a tiered rate of 7% up to $1 million in gains and 9.9% on gains above that. The millionaire’s tax is a separate, broader tax on Washington taxable income above $1 million, and the two interact through specific adjustments in the calculation.
When do I need to start planning?
Now. While the tax does not take effect until January 1, 2028, many of the strategies above, particularly residency reviews, entity structuring, and trust planning, take significant time to implement properly.