Washington’s newly approved income tax marks a major change for a state that has long promoted itself as having no personal income tax.
Gov. Bob Ferguson signed Senate Bill 6346 into law on March 30, 2026. It creates a 9.9% tax on annual Washington taxable income above $1 million, beginning January 1, 2028.
Most residents will not pay the tax directly. However, its unusually high rate, treatment of business income, legal challenges, and possible effect on wealthy residents are causing concern among business owners and taxpayers.
The tax starts in 2028
Washington’s new tax applies only to taxable income above $1 million per household.
Someone with $900,000 in taxable income would owe nothing under the law. A household with $1.2 million would generally pay the 9.9% rate on the $200,000 above the threshold, not on the entire amount.
The tax takes effect January 1, 2028, with the first returns and payments due in 2029. The $1 million threshold will begin to be adjusted for inflation in 2030.
Fewer than 0.5% may pay it
Supporters estimate that fewer than one-half of 1% of Washington residents will owe the tax.
That could represent roughly 20,000 to 30,000 households, although the actual number will depend on incomes, deductions, residency decisions, and economic conditions when collections begin.
State officials expect the tax to generate more than $3 billion annually once fully implemented. Revenue estimates remain uncertain because a relatively small number of high-income taxpayers will account for most of it.
Some business owners could be affected
The tax is aimed at individuals, but it can include income from sole proprietorships, partnerships, limited liability companies, and other pass-through businesses.
These businesses generally do not pay federal income tax at the company level. Instead, profits pass through to their owners and appear on individual tax returns.
A business owner could therefore owe the tax after a highly profitable year or the sale of a company, even when much of the reported income came from business activity rather than a regular salary. Critics argue that this could affect investment and succession planning for family-owned companies.
The law includes household relief
The final legislation did not simply place all revenue into unrestricted state spending.
It expanded the Working Families Tax Credit to an estimated 460,000 additional households. Eligible residents could receive payments generally ranging from several hundred dollars to more than $1,000, depending on income and family size.
The package also provided funding for free meals for public school students, child care, small-business tax relief, public defense, and sales tax exemptions on products such as diapers, certain personal-care items, and over-the-counter medications.
These provisions mean claims that lawmakers rejected every direct affordability measure do not accurately describe the final law.
Washington’s tax system is highly regressive
Supporters said the law was intended to reduce Washington’s dependence on sales, property, and business taxes.
Sales taxes take a larger share of income from lower-income households because those families must spend more of their earnings on taxable goods. Wealthier households can save or invest a greater portion of their income.
The millionaires’ tax shifts a larger part of the state’s revenue burden toward households with very high annual incomes. Supporters argue that this makes the overall system fairer, even though the law does not broadly reduce Washington’s 6.5% state sales tax.
Critics fear the tax could expand
Opponents are concerned that future lawmakers could lower the $1 million threshold or increase the tax rate.
The law does not automatically expand to middle-income residents. Any major change would require additional legislative action and approval by a future governor or passage through another lawmaking process.
Ferguson has said he would veto efforts to lower the income threshold. However, that promise does not bind future governors or legislatures, which is why critics continue seeking stronger limits or voter approval requirements.
Wealthy residents could reconsider Washington
A major economic question is whether high earners will move, change their official residence, delay income, or restructure businesses to reduce their Washington tax exposure.
Washington competes with states such as Florida, Texas, Nevada, and Wyoming, which do not impose broad personal income taxes. High-income residents often have more flexibility to relocate than typical workers.
Even a relatively small number of departures could affect revenue because collections depend heavily on a narrow group of taxpayers. However, predictions of a large-scale exodus remained uncertain before the tax had taken effect.
Quality of life, employment, family ties, business operations, housing, and access to customers can matter as much as taxes when people decide where to live.
Legal and ballot challenges continue
Opponents argue that Washington’s constitution limits graduated income taxes because state courts have historically treated income as property.
Supporters maintain that the new law was structured to comply with constitutional requirements. A lawsuit challenging the tax remained unresolved in 2026.
The Washington Supreme Court blocked an attempt to suspend the law through a referendum, but did not rule on the separate constitutional challenge. Opponents were also pursuing a ballot initiative that could ask voters to repeal the tax.
The final impact will therefore depend on court decisions, voter action, taxpayer behavior, and the state’s effectiveness in delivering the promised relief.
TL;DR
- Washington approved a 9.9% tax on annual taxable income above $1 million.
- The tax begins January 1, 2028, with the first payments due in 2029.
- Fewer than 0.5% of residents are expected to pay it directly.
- Pass-through business income can count toward the $1 million threshold.
- Revenue will support tax credits, free school meals, child care, public defense, and small-business relief.
- Critics fear wealthy residents may leave or that future lawmakers could expand the tax.
- Court and ballot challenges could still change or repeal the law before collections begin.
