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Washington State Has No Income Tax: The Full 2026 Breakdown

Q: Does Washington state have an income tax?

Washington state has no income tax on wages, salary, or ordinary income in 2026 or 2027. In March 2026 it enacted ESSB 6346, a 9.9% tax on household income above a $1 million standard deduction from 1 January 2028. Voters rejected Initiative 645, which would have repealed it, on 3 November 2026. Washington also has a capital gains excise tax on the sale of stocks, bonds, and other capital assets: 7% on long-term gains above an annual standard deduction ($278,000 for 2025, indexed for inflation), rising to 9.9% on the portion of taxable gains above $1 million (a 2.9% surtax added for the 2025 tax year under ESSB 5813). The base tax was upheld by the Washington State Supreme Court in March 2023. Washington also has a Business and Occupation (B&O) tax on gross business receipts.

Q: What is Washington's capital gains tax?

Washington's capital gains excise tax is 7% on long-term capital gains above an annual standard deduction ($278,000 for 2025, up from $250,000 when the tax began and indexed for inflation), rising to 9.9% on the portion of taxable gains above $1 million for the 2025 tax year onward. Real estate sales are exempt. Retirement accounts (401k, IRA) are exempt. The tax was upheld by the state Supreme Court in 2023 and first applied from January 1, 2022. High earners selling stocks, businesses, or investments above the threshold owe this tax.

Q: What is the sales tax rate in Washington state?

Washington's state sales tax is 6.5%. Cities and counties add up to 4.1%, bringing the average combined rate to 9.51%, the third-highest in the US (Tax Foundation, 1 Jan 2026). Seattle is 10.55% from 1 January 2026 (Washington DOR). Groceries and prescription drugs are exempt from Washington sales tax.

Q: What is the B&O tax in Washington?

Washington's Business and Occupation (B&O) tax is a gross receipts tax on business revenue, not net income. The main rates are 0.471% for retailing, 0.484% for manufacturing and wholesaling, and, since 1 October 2025, 1.5%, 1.75% or 2.1% for service and other activities depending on whether the business's prior-year gross income in that classification was under $1 million, $1 million to $4,999,999, or $5 million or more. There is no deduction for expenses or cost of goods sold. This makes it particularly burdensome for low-margin businesses.

Washington state has no income tax on wages or salary in 2026 or 2027. A 9.9% tax on household income above $1 million, enacted in March 2026, starts in 2028; voters rejected a measure to repeal it on 3 November 2026. Washington also enacted a capital gains excise tax in 2021 (upheld by the state Supreme Court in 2023), has the third-highest combined sales tax rate in the nation at 9.51% (Tax Foundation, 1 Jan 2026), and levies a Business and Occupation (B&O) tax on gross business receipts.

2025 update: Under ESSB 5813, Washington added a 2.9% surtax for the 2025 tax year, so the capital gains tax is now 7% on taxable gains above the annual standard deduction ($278,000 for 2025) and 9.9% on the portion above $1 million. The state estate tax exemption also rose to $3 million for deaths on or after July 1, 2025.

Income tax from 2028 (repeal rejected 3 Nov 2026): ESSB 6346, signed 30 March 2026, taxes Washington taxable income above a $1 million standard deduction at 9.9%, starting 1 January 2028, with first returns due in 2029. Spouses and domestic partners share one $1 million deduction. Voters rejected Initiative 645, which would have repealed it, on 3 November 2026; a constitutional lawsuit is still pending. Households under $1 million are not taxed either way. How it works

Last reviewed October 2026. Sources: Washington Department of Revenue, Washington Legislature (ESSB 6346 final bill report), Tax Foundation, MERIC.

Quick Facts: Washington Taxes 2026

Wage Income Tax

Through 2027; 9.9% above $1M from 2028

Capital Gains Tax

7-9.9%

Above $278K; 9.9% over $1M

Combined Sales Tax

9.51%

Seattle: 10.55% (2026)

Avg Property Tax

0.75%

$3,000/yr on $400K home

B&O Tax

Varies

0.471% to 2.1% of gross receipts

Estate Tax

Yes

On estates above $3M (since Jul 2025)

Cost of Living

115.1

15.1% above national avg (C2ER, Q2 2026)

Median Listing

$639K

Realtor.com, Sep 2026

The 2028 Income Tax on Income Above $1 Million

Washington's first broad income tax, ESSB 6346 (Chapter 238, Laws of 2026), was signed on 30 March 2026. From 1 January 2028 it charges 9.9% on Washington taxable income, which starts from federal adjusted gross income and subtracts a $1 million standard deduction. Spouses and domestic partners share one $1 million deduction whether they file jointly or separately, and the deduction is indexed for inflation every second year from 2030. Nonresidents pay on Washington-source income, with the deduction reduced in proportion.

What it means for you

Household income under $1 million: no Washington income tax, in 2028 or now.
Household income of $1.5 million in 2028: 9.9% of the $500,000 above the deduction, or $49,500 (before credits).
Credits against it: income tax paid to another state on the same income, B&O or public utility tax on the same income, and Washington capital gains tax on gains it also taxes.
First return: filed in 2029 for income earned in 2028.

The ballot route to stopping it failed: voters rejected Initiative 645, which would have repealed the tax and barred state and local income taxes, on 3 November 2026, with about 58% voting No in election-night returns (counties certify results later in November). The court route is still open: a lawsuit filed in Klickitat County Superior Court in April 2026 argues it violates Article VII, Sections 1 and 2 of the Washington Constitution. Until that is settled, the tax is scheduled to apply from 2028; Washington still has no tax on wages, and the earliest anyone owes is on 2028 income.

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. Most service businesses file under the service and other activities classification, which since 1 October 2025 has three rates set by the prior calendar year's gross income in that classification: 1.5% under $1 million, 1.75% from $1 million to $4,999,999, and 2.1% at $5 million or more. A $500,000 revenue practice at 1.5% pays $7,500 in B&O tax whether or not it made a profit. Retailing is 0.471% and manufacturing and wholesaling are 0.484%.

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. A small business B&O credit of up to $160 a month for service businesses (up to $55 a month for others) wipes out small bills and phases out completely once monthly B&O due passes $320 (service) or $110 (others).

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

Excellent

Amazon, 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

Caution

If 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 caution

Washington'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 good

Wage income is untaxed in Washington through 2027, and from 2028 only household income above $1 million is taxed (voters kept the new tax on 3 November 2026; a court challenge is pending). 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?

Not on wages or salary in 2026 or 2027. A 9.9% tax on household income above $1 million starts in 2028; voters rejected its repeal (Initiative 645) on 3 November 2026. Washington also has a capital gains excise tax (7% on gains above a $278,000 standard deduction for 2025, rising to 9.9% on the portion above $1 million; the base tax was upheld by the state Supreme Court in March 2023) and a B&O tax on business gross receipts.

Is Washington adding an income tax in 2028?

Washington enacted ESSB 6346 (signed 30 March 2026): a 9.9% tax on Washington taxable income above a $1 million standard deduction, starting 1 January 2028, with first returns and payments in 2029. The $1 million deduction is shared by spouses and domestic partners, not doubled. Voters rejected Initiative 645, the measure to repeal it, on 3 November 2026 (about 58% No in election-night returns); a separate lawsuit argues it breaks the state constitution. Wages and income under $1 million stay untaxed either way.

What is Washington's capital gains tax?

7% on long-term capital gains above the annual standard deduction ($278,000 for 2025, indexed for inflation), rising to 9.9% on the portion of taxable gains above $1 million for the 2025 tax year onward. The deduction is one combined amount per married couple, not doubled. Exempt: real estate, retirement accounts (401k, IRA), and some small business sales. Applies from January 1, 2022 onward.

What is the sales tax rate in Washington state?

State rate 6.5%. Seattle total: 10.55% from 1 January 2026. Average statewide combined: 9.51% (Tax Foundation, 1 Jan 2026). Groceries and prescription drugs are exempt.

What is the B&O tax in Washington?

A gross receipts tax on business revenue (not net income). Main rates: 0.471% retailing, 0.484% manufacturing and wholesaling, and 1.5%, 1.75% or 2.1% for service and other activities depending on prior-year gross income (under $1M, $1M to $4,999,999, $5M or more) since 1 October 2025. No deduction for expenses. Applies to virtually all Washington businesses.

Sources: Washington Department of Revenue (dor.wa.gov), Washington State Supreme Court ruling Quinn v. State (March 2023), ESSB 5813 (2025), ESB 6347 (2026), ESSB 6346 final bill report (Chapter 238, Laws of 2026), Washington DOR special notice on service and other activities rates (October 2025), Tax Foundation. Last reviewed October 2026. Not tax advice.

Total Tax Burden

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Residency Checklist

How to establish WA domicile