Washington has enacted a new 9.9% Millionaires’ Tax that will affect certain high‑income households beginning in 2028. While the effective date is still several years away, the law represents a significant change in Washington’s tax landscape and introduces new planning and compliance considerations for individuals and business owners with Washington‑source income.
Below is a practical overview of how the Washington Millionaires’ tax works, who it may affect, and why early planning is important.
Key Takeaways
- Washington enacted a 9.9% Millionaires’ Tax on household income exceeding $1 million, effective January 1, 2028.
- The tax applies to Washington residents, part‑year residents, and certain nonresidents with Washington‑source income.
- A single $1 million standard deduction applies per household, not per individual.
- Income from pass‑through entities—including partnerships, LLCs, and S corporations—may be subject to the tax.
- A new Pass‑Through Entity Tax (PTET) election may improve overall tax efficiency for some business owners.
- The law introduces new filing, estimated payment, and sourcing requirements that increase compliance complexity.
A Shift in Washington’s Tax Landscape
For decades, Washington has stood apart as a state without a broad‑based personal income tax. The Millionaires’ Tax changes that dynamic by imposing a targeted tax on households earning more than $1 million annually.
Beginning in 2028, Washington taxable income will be calculated starting with federal adjusted gross income (AGI), followed by state‑specific additions, subtractions, exclusions, and credits. Income above the $1 million threshold will then be taxed at 9.9%.
Although the law focuses on high‑income households, its reach is broader than many taxpayers initially expect.
Who the Millionaires’ Tax Applies To
The tax applies to more than full‑year Washington residents. It may also affect:
- Part‑year residents, who must allocate income between residency and nonresidency periods
- Nonresidents with Washington‑source income, including income from businesses, services performed in Washington, or certain investment activities
- Business owners, including pass‑through entity owners, even if they live outside Washington, when income is sourced to the state
As a result, individuals who do not consider themselves Washington taxpayers may still have exposure.
The $1 Million Deduction and Household Filing Rules
The law provides a $1 million standard deduction per household. Married couples and registered domestic partners share a single deduction regardless of how they file.
This structure can create a marriage penalty for dual‑income households. Two individuals earning $600,000 each may avoid the tax when single but exceed the threshold once income is combined.
The deduction will be indexed for inflation beginning in 2029, but the household limitation remains a defining feature of the law.
Implications for Business Owners and Pass‑Through Entities
Income earned through pass‑through entities—such as partnerships, LLCs taxed as partnerships, and S corporations—flows through to individual owners and may be subject to the Millionaires’ Tax.
To address this, the law introduces a Pass‑Through Entity Tax (PTET) election, allowing qualifying entities to pay the tax at the entity level on behalf of participating owners. Owners then receive a corresponding credit on their individual returns.
While the PTET election does not eliminate the tax, it may improve overall tax efficiency, particularly when federal deductibility is considered. Because the election is made annually, advance modeling and coordination are critical.
How the Tax Interacts with Other Washington Taxes
The Millionaires’ Tax layers onto Washington’s existing tax structure, including the capital gains tax, business and occupation (B&O) taxes, and multistate sourcing and apportionment rules.
Credits are available for certain overlapping taxes, including Washington capital gains tax, select B&O taxes, and income taxes paid to other states. These credits are generally nonrefundable and cannot be carried forward, meaning they may reduce—but not fully offset—overall tax exposure.
The tax also operates alongside Washington’s estate tax, reinforcing the importance of long‑term, integrated planning.
Increased Compliance and Administrative Requirements
Beyond the tax itself, the Millionaires’ Tax introduces new compliance obligations. Affected taxpayers should expect additional filings, estimated payments, annual elections, and more detailed income sourcing analyses.
As a result, the cost of the tax includes not only the amount paid to the state but also the increased administrative burden of ongoing compliance.
Why Planning Should Start Now
Although the Washington’s Millionaires’ Tax does not take effect until 2028, early planning can significantly expand available options. Many effective strategies—such as transaction timing, business restructuring, or residency changes—require advance coordination and documentation.
Operational readiness is also key. Accounting systems, estimated payment processes, and multi‑year projections may need to be updated well before the first effective year.
Planning Areas to Review
Taxpayers who may be impacted should consider reviewing:
- Timing of income and liquidity events
- PTET election analysis for pass‑through entities
- Income sourcing and apportionment for multistate activity
- Multi‑year income structuring
- Charitable giving strategies
- Estate and wealth transfer planning
- Residency and domicile considerations
- Comprehensive, multi‑year tax modeling
Final Thoughts
Washington’s Millionaires’ Tax represents a meaningful change for high‑income households and business owners, both in tax liability and compliance obligations. While additional guidance is expected, the law is now in place, and the planning window ahead of 2028 offers an important opportunity to be proactive.
Early, coordinated planning—focused on long‑term objectives—can help taxpayers navigate Washington’s evolving tax environment with confidence.
To discuss how this new tax may affect your situation, contact Sonjia Barker, State and Local Tax (SALT) Shareholder, or your Perkins & Co advisor.