At a Glance

Washington has enacted a new tax aimed at high-income households. Under ESSB 6346, the state will impose a 9.90% tax on Washington taxable income beginning January 1, 2028.

This is not a general tax on all income and it is not framed as a tax on wealth or property. Instead, the law creates a new Washington income-based tax structure that applies only after a $1,000,000 standard deduction.

Why This Matters

For Washington residents and others with Washington-source income, this law creates a new state-level tax exposure starting in 2028. It also adds planning considerations around domicile/residency, timing of income, entity structure, and Washington allocation.

Key Features

• Rate: 9.90%
• Start Date: Applies to tax years beginning January 1, 2028

Who Is Affected

The tax is designed to apply only to higher-income households. The legislation states an intent to limit the tax to households with annual adjusted gross income of $1,000,000 or more.

Basic Framework

The calculation starts with federal adjusted gross income, then applies Washington-specific rules to arrive at Washington taxable income.

Standard Deduction

The law provides a $1,000,000 standard deduction:

• $1,000,000 per individual
• $1,000,000 combined for spouses or registered domestic partners, whether filing jointly or separately

In simple terms, the first $1,000,000 is generally screened out before the 9.90% rate applies.

Residents vs. Nonresidents

Washington Residents: For full-year residents, the law generally allocates all income to Washington unless a specific exception applies.

Nonresidents: Nonresidents do not automatically receive the full $1,000,000 deduction. Instead, the deduction is reduced based on the ratio of Washington base income to total federal adjusted gross income.

That means a nonresident with limited Washington exposure may receive only a partial deduction rather than the full amount.

Pass-Through Entity Option

The law also includes an elective pass-through entity tax for partnerships and S corporations. If the entity makes the election, it may pay the tax at the entity level, and owners may receive a credit based on their share of that payment.

What Taxpayers Should Be Watching

• Residency and Domicile: Where a taxpayer is treated as a resident may become significantly more important.
• Timing of Income: The January 1, 2028 start date may make timing of recognition events more important for some taxpayers.
• Entity Structure: Owners of partnerships and S corporations should review whether the elective entity-level regime could affect planning.
• Litigation Risk: The law contains a broad null-and-void clause. If a court of final jurisdiction invalidates the core tax section, major portions of the act become void.

Bottom Line

Washington has now enacted a new high-income tax regime that will begin in 2028. While the law is aimed at top-income households, the statute is technical and will require careful analysis for residents, nonresidents, and owners of pass-through entities. Taxpayers with significant income, Washington connections, or major liquidity events should review the new rules early rather than waiting until the first filing season.

Need Help?

Our team is tracking the new law closely, including scope, calculation mechanics, domicile issues, nonresident treatment, and planning considerations for business owners and individuals.