On March 30, 2026, Governor Ferguson signed into law Engrossed Substitute Senate Bill 6346, better known as the Washington Millionaires’ Tax. While we expect it to be subject to immediate legal challenge, it is worth understanding the essential terms of the new income tax and how it may impact you.
Tax Base, Deductions, and Scope
For tax years beginning January 1, 2028, a flat 9.9% tax applies to your individual Washington taxable income above the $1,000,000 standard deduction each year. The $1,000,000 standard deduction is adjusted for inflation beginning October 2029 and then every odd year thereafter. The standard deduction reduces your Washington base income. For spouses or state-registered domestic partners, the $1,000,000 deduction is combined—the deduction is not doubled.
Washington residents are taxed on their worldwide income, whereas nonresidents are taxed only on their Washington‑source income with the $1,000,000 standard deduction prorated by a statutory fraction.
The income base for Washington’s purposes starts with your federal adjusted gross income (AGI), which includes, among other things, wages and salaries, business and self-employment income, interest and dividends, rents and royalties, retirement distributions, short-term capital gains, and long-term capital gains taxed under Washington’s capital gains excise tax (see further discussion below). Public pensions and retirement benefits are not exempt from the new income tax. Income excluded from federal AGI is likewise excluded from Washington’s base income unless otherwise provided.
Washington’s additional excluded categories of income include, but are not limited to, U.S. government obligations (e.g., Treasury bonds), certain tribal income protected from federal law, portions of wagering losses, certain federal net operating loss carryovers, and long-term capital gains not taxed under Washington’s capital gains excise tax (e.g. capital gains from certain real estate sales).
Your Washington taxable income consists of your Washington base income, as adjusted, minus certain deductions.
Applicability of the Tax
Washington’s new income tax applies only to individuals (natural persons). Non-grantor trusts, which are treated as a separate taxpayer under federal law, are not taxpayers under Washington’s new income tax. Washington resident beneficiaries of non-grantor trusts with completed gifts are subject to Washington income tax on the trust distributions that are included in their federal AGI. Incomplete gift non-grantor trusts (i.e., ING‑style trusts—DINGs (DE), NINGs (NV), and WINGs (WY)) do not shelter income for Washington resident grantors.
Credits, Elections, and Other Tax Relief Provisions
Certain nonrefundable credits are available to prevent double taxation by Washington on the same income, such as for other state income tax paid (limited to a statutory fraction and applied per jurisdiction), business and occupation tax or public utility tax paid, and Washington long-term capital gains excise tax paid. There is no carryforward or carryback available. A pass-through entity, such as a partnership, limited liability company, or S-corporation, can elect by June 15th of the taxable year to pay the 9.9% income tax at the entity level, with the entity owners receiving a credit equal to their pro-rata share, less any credit received for taxes paid to another state on the same income. This is an annual election and irrevocable for that tax year, and owner participation is not mandatory—owners may be included or excluded in the election. Also available is a $100,000 deduction per tax filing for charitable contributions claimed under Internal Revenue Code Section 170.
Coordination with WA Long-Term Capital Gains
Mechanically, Washington will first deduct from your base income all long-term capital gains included in your federal AGI and then add to your base income all long-term capital losses included in your federal AGI. Washington then adds back only those long-term capital gains that were subject to Washington’s capital gains excise tax, where excise tax was owing, offset by a nonrefundable credit for any excise tax paid. A Washington taxpayer could thus pay two different taxes, an excise tax and an income tax. Long‑term capital gains exempt from the Washington capital gains excise tax (such as from the sale of directly held real estate or for sales below the exemption threshold) remain outside the new Washington income‑tax base.
Filing Considerations
If Washington income tax is owed after apportionment and deductions, a Washington income tax return and payment are required. Electronic return filing and payment are required unless waived for good cause. An amended return is required within 90 days of any IRS changes. Estimated tax payments are required by July 1st, 2029, if federal estimated tax payments are required and the Washington income tax liability exceeds $5,000. Substantial and multiple penalties can apply (e.g., late-file penalty of 5% per month up to 25% of the unpaid tax due). There is a four-year statute of limitations for assessments and refunds.
Next Steps
Contact your tax, financial, and estate planning advisors to discuss managing your income tax exposure, the timing and structure of large liquidity events, residency planning, potential trust restructuring, and retirement income strategy.
The above general information is not intended to provide specific legal advice or to create an attorney-client relationship.
