The Washington State Millionaire Tax

Washington state legislators have approved a millionaire's income tax that is waiting for the Governor's signature. The Governor said he will sign this law.

 Beginning January 1, 2028, individuals with adjusted gross income over $1 million are subject to payment of the tax, which equals 9.90% of an individual's Washington taxable income. 

 The tax is on income OVER $1 million as there is a $1 million standard deduction that will be indexed for inflation.  In the case of spouses or state registered domestic partners, their combined standard deduction is $1,000,000, regardless of whether they file joint or separate returns. Therefore, the marriage penalty applies.

 DEDUCTIONS

The sale of real estate or the sale of qualified family-owned small businesses would  also be exempt from the millionaire tax.  

 There will be a charitable contribution deduction up to $100,000.

 CREDITS

- a credit for any property subject to WA capital gains tax as this avoids double taxation.

 Any Washington business & occupation  (B&O taxes) paid on Washington taxable income during the tax year would be allowed as a credit. The WA B&O tax is a gross receipts tax imposed on businesses.

 Washington will create a new pass-through entity tax credit for income passed through by a S-corporation, LLC or partnership. How this will work is unknown as currently Washington has no tax return for S-corporations, partnerships or LLCs.

 OTHER

Estimated Taxes are due if the estimated tax is over $5,000 for the year.

There is concern this new law is unconstitutional under WA law so litigation will definitely occur. So it’s possible this new law never becomes effective.