INSIGHT

Washington’s New Millionaire’s Tax: What High-Income Earners Need to Know Now 

May 28, 2026

Services: Tax

---

For decades, Washington State has been a financial haven for high earners, built largely on the absence of a personal income tax. That could change in 2028. On March 30, 2026, Gov. Bob Ferguson signed Engrossed Substitute Senate Bill (ESSB) 6346 into law, making Washington the 42nd state that would impose a personal income tax and the second state that would enact a “millionaire’s tax” following Massachusetts, which did so in 2023. A lawsuit led by Rob McKenna, former GOP Attorney General, and the Citizen Action Defense Fund has been filed challenging the tax on state constitutional grounds. In addition to the constitutional argument, opponents are simultaneously exploring potential initiatives to allow voters to overturn the law directly. 

Despite the lawsuit and significant political activity, the state is preparing for the tax effective in 2028. If you earn more than $1 million annually, live in Washington, work there, or own interests in Washington-based pass-through entities, this law could impact your personal finances. The good news is that you have time to plan, as the delayed effective date was put in place in anticipation of legal challenges. The key is starting now and preparing for when the tax takes effect. 

How The New Tax Works 

The new law imposes a 9.90% income tax on Washington taxable income exceeding $1 million per household, effective for tax years beginning on or after January 1, 2028. The first returns and payments won’t be due until April 2029, but the planning window opens today. 

Here’s the structure of the tax at a glance: 

• Standard deduction: Each individual or household may deduct $1 million from Washington base income, meaning the tax effectively applies only to income above that threshold. For married couples or state-registered domestic partners, the combined deduction is capped at $1 million regardless of whether you file jointly or separately. So, there is an explicit “marriage penalty” built into the legislation.  
• Inflation adjustment: The $1 million standard deduction will be adjusted for inflation annually beginning in 2030. 
• Charitable contributions: Deductions are available for charitable contributions up to $100,000 per individual, or $100,000 combined for spouses and domestic partners. 
• Estimated payments: Beginning July 1, 2029, individuals or households with annual tax liability of $5,000 or more must make estimated payments, generally following federal rules. Late or insufficient payments may trigger penalties. 

Washington base income starts with your federal adjusted gross income (AGI) and applies a set of state-level modifications, so your Washington taxable income won’t always mirror what you’re used to seeing on your federal return. 

Why This Is More Complex Than It Looks 

A 9.90% rate on income above $1 million sounds straightforward, but the administrative framework underneath it is layered and nuanced. Several factors are likely to complicate your situation depending on where you live, how you earn your income, and how your business is structured. 

Residency and Nonresident Sourcing Rules 

If you’re a Washington resident, all of your income is allocated to the state. If you’re a part-year resident, you’ll be taxed on income earned during your time as a resident plus any Washington-source income earned while living elsewhere. Nonresidents are taxed only on income derived from Washington sources, but the sourcing rules are detailed. 

Nonresident compensation is taxable to Washington to the extent services are performed in the state. When work happens both inside and outside Washington, compensation is apportioned using a days-worked ratio. Specific sourcing rules apply to real property capital gains, sales of tangible personal property, real and personal property rentals, services, intangibles, interest, and dividends. If your income crosses state lines in any of these forms, apportionment will require careful analysis. 

The Pass-Through Entity Tax Election 

Pass-through entities, including partnerships, LLCs, and S corporations, may elect to pay the 9.90% tax at the entity level effective for tax years beginning January 1, 2028. This is known as a pass-through entity tax (PTET) election, and it carries meaningful implications for owners who can bypass the $10,000 SALT deduction cap by electing in-state PTETs: 

• The election must be made annually, no later than June 15 of the taxable year. 
• Once made, the PTET election is irrevocable for that year. 
• Owners receive a credit for their proportionate share of tax paid at the entity level but must include their distributive share of the entity’s income on their individual Washington returns and add back any entity-level tax deductions reflected in federal AGI. 

For business owners with significant pass-through income, this election could offer planning opportunities, but the interaction between the PTET, existing Washington B&O taxes, and the new individual income tax requires careful modeling before you commit to a strategy. 

Credits That May Reduce Your Liability 

The law includes several nonrefundable credits designed to prevent double taxation: 

• A credit for income taxes or elective PTETs paid to another state or political subdivision on income that is also taxed by Washington 
• A credit for Washington B&O tax and public utility taxes paid on the same income 
• A credit for Washington capital gains tax paid on gains subject to both taxes 

If you already pay capital gains tax in Washington or operate a business subject to B&O tax, these credits could meaningfully reduce your new income tax bill. Understanding how to layer them correctly is where planning translates into real dollars. 

Residency Planning: Proceed With Caution 

If you’re considering relocating to a new state outside of Washington to avoid the new tax, that instinct is understandable, but it’s not a decision to make lightly. State tax authorities across the country have dramatically increased residency audits in recent years, particularly as remote work has made it easier for taxpayers to claim residency in low- or no-tax states like Florida, Tennessee, and Texas. 

Moving your tax domicile is more than a change of address, and the tax implications of moving to a new state should be evaluated before making any major residency decisions. Auditors look at where you spend your time, where your family is based, where your social and professional ties are anchored, and a range of other factors. Acting without a well-documented residency plan exposes you to significant audit risk, including potential back taxes, interest, and penalties. 

Relocating from Washington after 2026 but before the tax takes effect in 2028 may seem like an attractive window, but even those moves need to be structured and documented thoughtfully. 

What The Legal Landscape Means for You 

Washington’s new income tax has already faced legal challenges and is likely to continue to do so. Historical Washington case law has treated income as “property,” and taxation of property has faced constitutional constraints in the state. Similar arguments were raised when Washington’s capital gains tax was challenged, and that litigation went all the way to the Washington Supreme Court. 

This doesn’t mean you should assume the tax will be overturned. Planning for a law that may be modified or litigated requires flexibility, and any strategy you build should be designed to hold up under the law as written while remaining adaptable to potential changes. 

How BPM Can Help 

Washington’s new income tax touches nearly every area of high-net-worth tax planning: residency analysis, multistate income sourcing, pass-through entity structuring, and compliance administration. BPM’s State and Local Tax (SALT) and Private Client Services (PCS) teams work with high-income individuals, business owners, and families navigating exactly this kind of complexity. 

Whether you’re a Washington resident evaluating the full impact of the new law, a nonresident with income sourced to the state, or a business owner weighing the PTET election, BPM provides the integrated tax advisory and compliance support you need to approach 2028 with clarity and confidence. 

Our work begins with understanding your complete financial picture and modeling the scenarios that matter most to you, so you can make informed decisions rather than reactive ones. 

Start Planning Before the Clock Runs Out 

Two years may feel like a long runway, but high-income tax planning rarely moves fast. Residency changes take time to document and establish. Entity restructuring decisions affect multiple parties and tax years. Estimated payment requirements will kick in before most people have fully adapted to the new regime. 

Taxpayers who come through this transition in the best position will be the ones who start the conversation now. 

Contact BPM today to connect with our State and Local Tax or Private Client Services teams. We’re ready to discuss what Washington’s millionaire tax means for your specific situation and build a plan that is tailored to your needs.