Washington State Has No Income Tax: The Full 2026 Breakdown
Washington state has no income tax on wages or salary. But it enacted a capital gains excise tax in 2021 (upheld by the state Supreme Court in 2023), has one of the highest combined sales tax rates in the nation at 9.2%, and levies a Business and Occupation (B&O) tax on gross business receipts.
Last reviewed June 2026. Sources: Washington Department of Revenue, Tax Foundation, BEA.
Quick Facts: Washington Taxes 2026
Wage Income Tax
0%
No tax on wages or salary
Capital Gains Tax
7-9.9%
Above $278K; 9.9% over $1M
Combined Sales Tax
9.2%
Seattle: 10.25%
Avg Property Tax
0.94%
$3,760/yr on $400K home
B&O Tax
Varies
0.47-0.48% of gross receipts
Estate Tax
Yes
On estates above $3M (since Jul 2025)
Cost of Living
111
11% above national average
Median Home
$580K
Very high in King County
The Capital Gains Tax: What You Need to Know
Washington enacted a 7% excise tax on long-term capital gains above an annual standard deduction (originally $250,000, now $278,000 for 2025 and indexed for inflation) per individual per year. The Washington State Supreme Court upheld the tax in March 2023 (Quinn v. State of Washington), ruling it is an excise tax on a transaction, not an income tax, and therefore does not violate the state constitution's requirement that taxes be uniform on property. Application started January 1, 2022. For the 2025 tax year, ESSB 5813 added a 2.9% surtax on the portion of taxable gains above $1 million, taking the top rate to 9.9%.
Who owes Washington capital gains tax?
- Taxable: Long-term gains from stocks, bonds, mutual funds, and most business sales above the standard deduction ($278,000/yr for 2025; the deduction is per return, so a married couple filing jointly shares one $278,000 deduction, not two). The portion of taxable gains above $1 million is taxed at 9.9%.
- Exempt: Real estate sales (including your primary home and investment property)
- Exempt: Retirement account distributions (401k, IRA, 403b)
- Exempt: Small family-owned businesses (qualified small business stock exemptions apply)
- Exempt: Agricultural land sales
For a tech employee in Seattle with $300,000 of long-term capital gains in a year, the tax on the roughly $22,000 above the $278,000 deduction is about $1,540. For an entrepreneur selling a business with $1.75M in capital gains, taxable gains are about $1.472M after the deduction: the first $1M is taxed at 7% ($70,000) and the remaining $472,000 at 9.9% ($46,728), for roughly $116,700 in total.
The B&O Tax: For Business Owners
Washington's Business and Occupation (B&O) tax is unusual: it is levied on gross business receipts, not net income. There is no deduction for expenses. This means even an unprofitable business owes B&O tax if it has revenue. For service businesses at 0.484% of revenue: a $500,000 revenue practice pays $2,420 in B&O tax regardless of whether it made a profit.
The B&O tax is filed separately from personal income taxes and applies to virtually all businesses in Washington. Sole proprietors, LLCs, corporations, and partnerships all pay it. There is a small business B&O tax credit that eliminates the tax for businesses with annual revenue below approximately $50,000.
Washington Estate Tax
Washington is one of only a handful of states with a state estate tax. For deaths on or after July 1, 2026, the exemption is $3 million (reset from the roughly $3.08 million that applied to deaths through June 30, 2026), and estates owe Washington estate tax on the amount above it on a graduated scale from 10% to 20%. This top rate of 20% (on amounts above $9 million) is the result of ESB 6347, a 2026 law that rolled the rate back from the 35% top rate that ESSB 5813 had temporarily imposed on deaths between July 1, 2025 and June 30, 2026. A Washington resident with a $5 million estate owes tax on the roughly $2 million above the exemption, which is a significant consideration for high-net-worth retirees. Florida, Texas, Nevada, and Wyoming have no estate tax.
Who Washington Works Best For
Tech workers with W-2 income, gains below $278K
ExcellentAmazon, Microsoft, Boeing employees earning primarily W-2 wages pay no state income tax. If your long-term capital gains stay below the $278K annual deduction, you owe no capital gains tax either. Seattle's tech salary premium is real.
High earners with large capital gains
CautionIf you regularly realize gains above the $278K deduction, you owe 7% capital gains tax, and 9.9% on the portion of taxable gains above $1M (a 2.9% surtax added for 2025). Consider timing sales or evaluate whether other states offer a better deal for your situation.
Retirees with estates above $3M
Serious cautionWashington's state estate tax is a major cost for high-net-worth retirees. If your estate exceeds the $3M exemption, graduated rates apply, with a top rate of 20% for deaths on or after July 1, 2026 (rolled back by ESB 6347 from the 35% rate that applied through June 30, 2026). Compare to Florida, Texas, and Wyoming which have no estate tax.
Remote workers (wage income)
Very goodWage income remains fully exempt from Washington state tax. If you work remotely and your employer is not in New York, Connecticut, Delaware, Nebraska, or Pennsylvania, you owe no state income tax.
Washington Tax FAQ
Does Washington state have an income tax?
What is Washington's capital gains tax?
What is the sales tax rate in Washington state?
What is the B&O tax in Washington?
Sources: Washington Department of Revenue (dor.wa.gov), Washington State Supreme Court ruling Quinn v. State (March 2023), ESSB 5813 (2025), ESB 6347 (2026), Tax Foundation. Last reviewed June 2026. Not tax advice.