{"id":45419,"date":"2026-03-31T16:23:56","date_gmt":"2026-03-31T23:23:56","guid":{"rendered":"https:\/\/evergreensmallbusiness.com\/?p=45419"},"modified":"2026-03-31T16:23:56","modified_gmt":"2026-03-31T23:23:56","slug":"the-new-washington-millionaires-tax","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/the-new-washington-millionaires-tax\/","title":{"rendered":"The New Washington Millionaires Tax"},"content":{"rendered":"<p><a href=\"https:\/\/evergreensmallbusiness.com\/wp-content\/uploads\/2026\/03\/iStock-2174903314.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignleft size-medium wp-image-45422\" src=\"https:\/\/evergreensmallbusiness.com\/wp-content\/uploads\/2026\/03\/iStock-2174903314-300x200.jpg\" alt=\"The new Washington state millionaires tax hits high-income taxpayers with a flat 9.9% rate.\" width=\"300\" height=\"200\" srcset=\"https:\/\/evergreensmallbusiness.com\/wp-content\/uploads\/2026\/03\/iStock-2174903314-300x200.jpg 300w, https:\/\/evergreensmallbusiness.com\/wp-content\/uploads\/2026\/03\/iStock-2174903314.jpg 724w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a>The Washington legislature recently passed a new \u201cmillionaires tax.\u201d Governor Ferguson signed the bill yesterday. Thus, starting in 2028, high-income Washington residents (and high-income nonresidents earning income in Washington) will pay a 9.9% income tax.<\/p>\n<p>The first tax return won\u2019t be due until 2029. But if you\u2019re affected by the new tax? You want to understand mechanically how it works now. The formula varies from the federal tax formula. And you do have some planning options.<\/p>\n<h2>How New Washington Millionaire\u2019s Tax Works<\/h2>\n<p>At first glance, many people assume this state income tax works like a traditional income tax system\u2014with brackets, marginal rates, and complexity layered on top. But that mental model misleads. A better way to understand the tax? This is a flat tax with a one-size-fits-all deduction.<\/p>\n<p>Conceptually, the tax formula works like this:<\/p>\n<p><strong>Step 1:<\/strong> Start with a taxpayer\u2019s federal adjusted gross income (AGI)<br \/>\n<strong>Step 2:<\/strong> Make a handful of Washington-specific adjustments<br \/>\n<strong>Step 3:<\/strong> Subtract a $1,000,000 deduction<br \/>\n<strong>Step 4:<\/strong> Tax any positive remainder at a 9.9% flat tax rate<\/p>\n<p>Two quick notes: First, that $1,000,000 standard deduction is per household and adjusted for inflation every other year. Second, the\u00a0$1,000,000 Washington deduction essentially replaces the federal tax return\u2019s standard deduction or itemized deductions total.<\/p>\n<h2>A Quick Example of How New Flat Tax Works<\/h2>\n<p>Let\u2019s look at a quick example in the case where a taxpayer earns $2,000,000 of income:<br \/>\n\u2022 AGI: $2,000,000<br \/>\n\u2022 Less deduction: $1,000,000<br \/>\n\u2022 Taxable amount: $1,000,000<br \/>\n\u2022 Tax: $99,000<\/p>\n<p>That\u2019s all straightforward. But this flat tax gets more complicated as you dig into the details.<\/p>\n<h2>Step 2 Is Where Things Get Interesting<\/h2>\n<p>As noted, the Washington state millionaire\u2019s tax starts with federal AGI. (See that list of steps above.) But Washington does not simply adopt that number. Instead, the statute requires a series of adjustments (again, step 2 above) to create what it calls:<\/p>\n<p>\u201cWashington base income\u201d and ultimately \u201cWashington taxable income.\u201d<\/p>\n<p>These adjustments complicate the tax. (That is bad.) And they also create planning opportunities. (Which is good.)<\/p>\n<p>Here are the key modifications in plain English.<\/p>\n<h3>1. Long-Term Capital Gains Are Adjusted (But Separately Taxed)<\/h3>\n<p>Washington removes federal long-term capital gains from AGI and then mostly adds back Washington capital gains taxed under its separate capital gains tax system.<\/p>\n<p>Translation:<br \/>\n\u2022 Federal capital gains don\u2019t flow through directly<br \/>\n\u2022 They\u2019re re-measured and tweaked under Washington\u2019s capital gains rules<br \/>\nThis keeps the two tax systems coordinated and avoids double taxation. (This also affects the taxation of residential property and small business sales, as discussed later.)<\/p>\n<h3>2. Tax-Exempt State and Municipal Bond Interest Gets Added Back<\/h3>\n<p>The formula adds-back interest excluded from federal AGI (like out-of-state municipal bond interest).<\/p>\n<p><strong>Example:<\/strong> $200,000 municipal bond interest (federally tax-exempt) isn\u2019t typically included in the federal AGI. However, that amount may still be taxable in Washington. Thus, the formula adds-back that interest.<\/p>\n<p>This is a classic \u201cstate decoupling\u201d move.<\/p>\n<h3>3. State Taxes Deducted Federally Get Added Back<\/h3>\n<p>If you deducted certain taxes in computing federal AGI, Washington adds them back.<\/p>\n<p>The add-backs for taxes include state income taxes (if applicable), Washington B&amp;O taxes and pass-through entity (PTE) tax payments.<\/p>\n<p>The logic here? Washington prevents you from reducing its tax base using deductions tied to other taxes.<\/p>\n<h3>4. Pre-2028 Net Operating Losses Are Disallowed<\/h3>\n<p>Net operating losses (NOLs) from before January 1, 2028 are added back to the federal AGI and, thus, not allowed to reduce Washington income. Only post-2028 losses get partial recognition. This is a major \u201creset\u201d feature in the statute.<\/p>\n<h3>5. Interest on U.S. Government Obligations Is Subtracted<\/h3>\n<p>The formula subtracts interest from U.S. Treasury bonds, federal notes and similar federal obligations from Washington income. This follows long-standing constitutional principles limiting state taxation of federal obligations.<\/p>\n<h3>6. Wagering Losses Get Partial Relief<\/h3>\n<p>Washington allows a deduction for wagering losses: Up to 90% of losses (limited to wagering income). This matches the federal rules for 2026 and future years.<\/p>\n<h3>7. Cannabis Businesses Get a Special Deduction<\/h3>\n<p>Normally, businesses don\u2019t get to deduct the expenses of operating an illegal or criminal enterprise because of IRC \u00a7280E. Washington state cannabis businesses, for example, cannot deduct ordinary expenses on the federal income tax return.<\/p>\n<p>Washington reverses that result, however. It makes those disallowed expenses deductible for Washington purposes. This is a significant taxpayer-friendly adjustment for that industry.<\/p>\n<h3>8. A Few Niche Adjustments (Most Taxpayers Won\u2019t Encounter)<\/h3>\n<p>The statute also includes several specialized rules:<br \/>\n\u2022 Incomplete nongrantor trusts: income may be pulled back into the individual\u2019s tax base<br \/>\n\u2022 Tribal income: certain income is exempt<br \/>\n\u2022 Capital construction funds (vessel industry): deposits may be deductible.<\/p>\n<p>For most taxpayers, these won\u2019t matter\u2014but they reflect how comprehensive the statute is. (And point, I guess, to why you want a well-connected lobbyist.)<\/p>\n<h2>Credits Matter Too<\/h2>\n<p>The Millionaire\u2019s tax provides credits, too. (A $1000 credit reduces the state income tax amount by $1000.)<\/p>\n<p>For example, Washington state gives you credit for business and occupation taxes it already levied against business income it wants to tax again. It also gives you credit for any Washington state capital gains it wants to tax again. (In effect with these credits, you pay tax once on income. Not twice.)<\/p>\n<p>Washington state also gives you credit for income taxes you\u2019ve paid other states. In the case where, for example, you\u2019ve already paid another state (Arizona) income taxes on a $1,000,000 chunk of business income? Washington lets you reduce the amount of Washington state millionaires tax you owe on that same $1,000,000 for the other state\u2019s (Arizona\u2019s) taxes you\u2019ve already paid.<\/p>\n<h2>Non-resident Millionaires Earning Income in Washington State Get Taxed<\/h2>\n<p>Non-resident millionaires with Washington state income get taxed too. And the flat tax works proportionally.<\/p>\n<p>For example, a resident earning $2,000,000 AGI would pay about $99,000 in millionaires\u2019 tax. (This is the example we used above.)<\/p>\n<p>However, a nonresident earning $2 million total\u2014two-thirds outside Washington and one-third inside\u2014would pay roughly $33,000 of Washington millionaire\u2019s tax, because both the income and the $1,000,000 deduction are prorated based on the share of income earned in Washington.<\/p>\n<p>Note that the $33,000 is one third of the $99,000 millionaire\u2019s tax a resident would pay.<\/p>\n<h2>Two Final Qualifications<\/h2>\n<p>The statute\u2019s preamble suggests that sales of residential real estate and qualified family-owned businesses won\u2019t be taxed\u2014and importantly, that treatment does appear in the operative law.<\/p>\n<p>But the mechanism is indirect: Washington removes federal long-term capital gains from income and then adds back only \u201cWashington capital gains,\u201d as defined under the state\u2019s existing capital gains tax. Because that system already excludes real estate and provides a deduction for qualified family-owned businesses, those exclusions effectively carry over into the new millionaire\u2019s tax. The result is that, while not stated in a single clean sentence in the statute, the intended treatment is largely implemented through cross-reference.<\/p>\n<h2>Other Resources<\/h2>\n<p><a href=\"https:\/\/evergreensmallbusiness.com\/washington-state-millionaires-tax-residency-rules\/\">Washington State Millionaires\u2019 Tax Residency Rules<\/a><br \/>\n<a href=\"https:\/\/evergreensmallbusiness.com\/changing-your-washington-state-residency\/\">Changing Your Washington State Residency<\/a><br \/>\n<a href=\"https:\/\/evergreensmallbusiness.com\/washingtons-qualified-family-owned-business-interest-estate-tax-deduction-updated-for-2025\/\">Qualified Family-Owned Business Deduction<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Washington legislature recently passed a new \u201cmillionaires tax.\u201d Governor Ferguson signed the bill yesterday. Thus, starting in 2028, high-income Washington residents (and high-income nonresidents earning income in Washington) will pay a 9.9% income tax. The first tax return won\u2019t be due until 2029. But if you\u2019re affected by the new tax? You want to [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":45422,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1347,1346],"tags":[],"class_list":{"0":"post-45419","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-washington-millionaire-tax","8":"category-washington-state-income-tax","9":"entry"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>The New Washington Millionaires Tax - Evergreen Small Business<\/title>\n<meta name=\"description\" content=\"The Washington milliionaires tax won&#039;t kick in unil 2028, but affected taxpayers probably want to start planning for the new tax now.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/evergreensmallbusiness.com\/the-new-washington-millionaires-tax\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The New Washington Millionaires Tax\" \/>\n<meta property=\"og:description\" content=\"The Washington milliionaires tax won&#039;t kick in unil 2028, but affected taxpayers probably want to start planning for the new tax now.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/evergreensmallbusiness.com\/the-new-washington-millionaires-tax\/\" \/>\n<meta property=\"og:site_name\" content=\"Evergreen Small Business\" \/>\n<meta property=\"article:published_time\" content=\"2026-03-31T23:23:56+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/evergreensmallbusiness.com\/wp-content\/uploads\/2026\/03\/iStock-2174903314.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"724\" \/>\n\t<meta property=\"og:image:height\" content=\"483\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Stephen Nelson CPA\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@SeattleCPA\" \/>\n<meta name=\"twitter:site\" content=\"@SeattleCPA\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Stephen Nelson CPA\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/\"},\"author\":{\"name\":\"Stephen Nelson CPA\",\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/#\\\/schema\\\/person\\\/81bbd61b04df6d67d261eaa871e65e36\"},\"headline\":\"The New Washington Millionaires Tax\",\"datePublished\":\"2026-03-31T23:23:56+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/\"},\"wordCount\":1134,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/wp-content\\\/uploads\\\/2026\\\/03\\\/iStock-2174903314.jpg\",\"articleSection\":[\"washington millionaire tax\",\"Washington state income tax\"],\"inLanguage\":\"en\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/\",\"url\":\"https:\\\/\\\/evergreensmallbusiness.com\\\/the-new-washington-millionaires-tax\\\/\",\"name\":\"The New Washington Millionaires Tax - 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