Washington’s New Millionaire Tax: What High Earners and Business Owners Need to Know

For decades, Washington has been known for one defining feature: no personal income tax. That may be changing.

With the passage of the “Millionaire Tax” (SB 6346), the state is proposing a new tax aimed directly at high earners.

While the bill is expected to be signed into law, legal challenges are widely anticipated. Washington’s constitution has historically prohibited progressive income taxes, meaning the Washington State Supreme Court will likely play a decisive role in determining its future.

So, what exactly is this tax? How is it calculated? And most importantly what can you do about it?

The Millionaire Tax at a Glance

The proposed law introduces a:

• 9.9% tax on income above $1 million per household
• Effective January 1, 2028 (first payments due in 2029)
• Applicable to:
  • Washington residents
  • Part-year residents
  • Nonresidents with Washington-sourced income

It’s important to note that even those who don’t typically earn $1M annually could be impacted in a single year, particularly during:

• A business sale
• A large bonus or equity event
• A concentrated investment gain

Key Factors When Calculating the Tax

While the headline is simple—9.9% on income above $1 million—the actual impact depends on several key factors.

Your Total Income (Starting Point)

The calculation begins with your federal adjusted gross income (AGI), which typically includes:

• Wages and bonuses
• Business and pass-through income
• Certain investment income

For business owners and those with significant equity compensation, this is often where the largest swings occur.

The $1 Million Threshold

Each household receives a $1 million deduction:

• Shared between spouses (not $1M each)
• Indexed for inflation starting in 2029
• Prorated for part-year residents

Only income above $1 million is subject to the 9.9% tax.

Key Exclusions, Adjustments, and Credits

While taxable income starts with federal AGI, several adjustments can significantly change the outcome:

• Long-term capital gains are generally excluded (still subject to Washington’s capital gains tax)
• Charitable deductions are capped at $100,000 per household
• Addbacks to income include:
  • State and local tax deductions
  • Certain bond interest
  • Certain trust income (including ING trusts)
  • Loss carryforwards from years prior to the law’s effective date
• Available credits include:
  • Washington capital gains tax paid
  • B&O and public utility taxes (for business owners)
  • Taxes paid to other states

These elements may seem technical, but they are often where meaningful planning opportunities exist.

What This Means for You

For high earners and business owners, this introduces a new layer of tax exposure.

But with an effective date of 2028, it also creates a planning window to evaluate and coordinate decisions across liquidity and income events, charitable planning, and gift and estate strategy.

We’ve explored several of these strategies in more detail in the articles below:

• A Guide to Tax Efficient Investing
• Taxes & Highly Appreciated Assets
• Can You Gift Too Much?

The Bigger Point: Tax Strategy Drives Outcomes

Here’s what we know: taxes influence what you keep, what transfers to your family, and the long-term impact of your wealth.

And yet, many plans still treat taxes as an afterthought. Effective tax strategy must be proactive, integrated, and aligned with what matters most—your family, your business, and your legacy.

If you’re a high earner or business owner in Washington income, now is the time to evaluate your strategy.

Scheduling a conversation with our team is a great place to start. We’ll help bring clarity to the complexity and build a plan designed not just for today’s rules, but for whatever comes next.