On December 22, 2025, Governor Ferguson announced his plans for a “Millionaire Tax” to help fund Washington’s future public investments. A draft bill, S-3846.4/26 (4th Rough Draft)/H-3665, has now been released outlining a new state-level income tax on high-income individuals, scheduled to take effect January 1, 2028, with the first returns and tax payment due in April 2029.
We are sharing the key highlights below to help you understand the potential impact.
Overview of the Proposed Tax
9.9% Tax Rate
The proposal would impose a 9.9% tax on Washington taxable income. Only individuals would be subject to the tax (not corporations or pass-through entities, though owners would be taxed on their distributive shares).
$1,000,000 Standard Deduction
Each individual would receive a $1 million deduction. Married couples or registered domestic partners would share the same $1 million deduction, even if filing separately. Beginning in 2030, the deduction would be indexed annually for inflation.
Washington Base Income
Taxable income would be calculated starting with federal adjusted gross income (AGI), then adjusting for:
- Long-term capital gains and losses
- Washington-taxable capital gains
- State/local income tax deductions taken federally
- Certain income from federal obligations
- Other additions and subtractions detailed in the bill
Residency & Nonresident Rules
Who is a Washington resident?
A taxpayer is considered a resident if they:
- Lived in Washington all year,
- Are domiciled in Washington (with exceptions),
- Maintain a permanent place of abode in Washington and spend ≥183 days in-state, or
- Claim Washington as their federal tax home.
Nonresidents would be taxed only on Washington-source income, including:
- Wages for services physically performed in Washington
- Business income allocable to Washington
- Income from Washington real or tangible property
- Certain intangible income connected to Washington business activity
This will be particularly relevant for Oregon residents who work or operate businesses in Washington.
Available Tax Credits
The bill includes nonrefundable credits to avoid double taxation:
- Credit for income taxes paid to other states or countries
- Credit for Washington B&O and public utility taxes paid on the same income
- Credit for Washington capital gains tax paid for the same year
Unused credits would not carryforward or be refunded.
Compliance Requirements
- Returns would be due when the federal tax return is due.
- Filing is required only if tax is owed.
- Electronic filing and payment would be mandatory (with limited waivers).
- Estimated payments required if annualized tax liability exceeds $5,000.
- Penalties apply for late filing, late payment, underpayment of estimates, and tax evasion (which may carry felony penalties).
Who May Be Affected
- Individuals with federal AGI above $1 million
- Oregon residents earning Washington-source income
- Pass-through business owners with Washington activity
- Part-year residents
- Individuals paying the Washington capital gains tax
Next Steps
This legislation is still in draft form, and revisions are likely. We recommend beginning to evaluate possible impacts on your future tax position, particularly if you expect income above the $1 million threshold, maintain multi-state activities, or anticipate changes in residency.
Our team will continue to monitor developments closely as the bill moves through the 2026 legislative session.
If you have questions about how this proposal could affect you, please contact Sonjia Barker, State and Local Tax (SALT) Shareholder or your Perkins advisor.