Washington’s millionaires tax just cleared the House. On March 10, 2026, legislators passed SB 6346—a 9.9% income tax on households earning over $1 million. Governor Ferguson has committed to signing it. The tax takes effect January 1, 2028. Here’s what it means for your wealth, your business, and your planning window.
The Washington millionaires tax (SB 6346) imposes a 9.9% levy on adjusted gross income above $1 million per household. The first $1 million is fully exempt. For example, a household earning $1,500,000 would owe approximately $49,500. A household earning $3 million would owe roughly $198,000.
| Household AGI | Taxable Amount | Estimated WA Tax (9.9%) |
|---|---|---|
| $1,000,000 | $0 | $0 |
| $1,200,000 | $200,000 | $19,800 |
| $1,500,000 | $500,000 | $49,500 |
| $2,000,000 | $1,000,000 | $99,000 |
| $3,000,000 | $2,000,000 | $198,000 |
| $5,000,000 | $4,000,000 | $396,000 |
One detail has caused widespread confusion. Married couples and registered domestic partners share a single $1 million standard deduction. As a result, a dual-income couple each earning $600,000—totaling $1.2 million—would owe tax on $200,000. This is a critical planning consideration for dual-income professional households across the Puget Sound.
The tax affects roughly 21,000 to 30,000 filers statewide. That’s less than 1% of Washington households. However, it’s projected to generate approximately $3.5 billion annually beginning in 2029.
The bill must still return to the Senate for concurrence on House amendments. Legal challenges are widely expected. Additionally, a repeal initiative could appear on the November 2026 ballot.
The income tax doesn’t exist in isolation. Washington’s tax burden on high earners has compounded layer by layer over the past several years. Understanding the full picture is essential for effective planning.
The 7% capital gains tax took effect in 2022. The state Supreme Court upheld it in 2023. It applies to long-term gains above $250,000 annually.
Seattle’s JumpStart payroll tax adds rates up to 2.55% on wages above $194,452 in 2026. Meanwhile, the statewide B&O tax applies to gross receipts—not profits. This hits business owners regardless of whether they’re actually profitable.
The 0.59% WA Cares payroll tax funds a state long-term care insurance program. On top of all this, Washington’s estate tax applies to estates above just $3 million. That’s compared to $15 million at the federal level. Rates reached 35% under 2025 changes, although a companion bill (SB 6347) is advancing through the legislature to roll that back to 20%.
For a Seattle-based executive or business owner earning $3 million, the combined state and local tax burden now approaches what they’d pay in traditional income tax states. Washington’s historic advantage as a tax-friendly state for high earners is eroding in real time.
After Washington enacted its capital gains tax, IRS migration data showed a net loss of $1.66 billion in adjusted gross income from taxpayer outmigration in the first year alone. The Washington millionaires tax represents a significantly larger shift—and it targets the most mobile taxpayers in the state.
The bill starts with federal adjusted gross income. From there, it makes several Washington-specific modifications. Several exemptions and credits are built into the legislation.
Gains from the sale of qualified family-owned small businesses are exempt. Generally, this applies to businesses with less than $10 million in annual revenue where the seller owns at least 30% and is actively involved in management. Residential real property sales are also exempt. So is certain retirement income, including public pensions and tribal treaty income.
Several credits help prevent stacking. Taxpayers who pay the existing 7% capital gains tax can credit that amount against their Washington millionaires tax liability. Similarly, business owners can claim a credit for B&O taxes paid. Credits for income taxes paid to other states are also available.
A charitable deduction allows up to $100,000 per individual. For couples, the combined maximum is $100,000, regardless of filing status. Under the House version of the bill, qualifying contributions must be made to Washington-based nonprofits.
The bill explicitly addresses Incomplete Non-Grantor Trusts (INGs). Specifically, Section 307 adds ING trust income back to the Washington resident grantor’s taxable income. This effectively closes a strategy that works in some other high-tax states to shift income to a trust in a no-tax jurisdiction. In other words, you can’t use an ING trust to avoid the Washington millionaires tax.
The bill includes a provision declaring the tax “necessary for the support of state government,” which exempts it from the voter referendum process. However, constitutional challenges are widely expected. Opponents will argue that a graduated income tax violates the state constitution based on a 1933 Supreme Court ruling. Supporters counter that the 2023 capital gains tax decision established the legal framework. A citizens’ initiative to repeal the tax could also appear on the November 2026 ballot. Plan prudently—but don’t make irreversible decisions based on the assumption that the tax will be struck down.
Business owners operating as S-corps, partnerships, and LLCs face particular complexity under SB 6346. The interaction between entity-level income and personal income creates planning challenges—and opportunities. This is especially relevant for owners considering a business valuation or future exit.
The bill allows a pass-through entity (PTE) tax election. Entities can elect to pay the 9.9% tax at the entity level. In turn, owners receive a credit for their share of the entity-level tax paid.
Why does this matter? Under the federal SALT cap, individuals can only deduct $10,000 in state and local taxes. However, taxes paid at the entity level are generally deductible as a business expense. They’re not subject to the SALT cap. Therefore, the PTE election could allow business owners to effectively deduct the Washington millionaires tax against federal income. This could reduce the net cost substantially.
For a business owner in the 37% federal bracket, a fully deductible PTE election would reduce the effective cost of the 9.9% state tax to approximately 6.2% after the federal offset. The election is annual and irrevocable for that year. Estimated payments begin in 2029. Entities with both resident and nonresident owners face complex income sourcing rules. Model the PTE election carefully with your CPA before committing.
Small business advocates have raised an additional concern. The bill applies to adjusted gross income, not take-home pay. Consequently, a business owner whose entity grosses over $1 million—but whose personal income after expenses falls far below that—may still face compliance requirements. This distinction matters for service businesses, professional practices, and small manufacturers with thin margins.
The two-year window before the tax takes effect creates planning opportunities that diminish over time. Below are the primary strategies that tax, legal, and wealth management professionals are evaluating for affected Washington residents.
If you have flexibility over when you recognize income, this pre-tax window is valuable. RSU vesting schedules, stock option exercises, deferred compensation distributions, and business sale proceeds can potentially be accelerated into years before the tax applies. This strategy is especially relevant for tech executives at Amazon, Microsoft, Meta, and Google managing concentrated equity positions across Seattle and Bellevue.
Roth IRA conversions offer another timing opportunity. Converting traditional IRA assets to Roth in 2026 or 2027 locks in the current zero-state-income-tax environment on the conversion income. After 2028, that same conversion would trigger the 9.9% state tax on any amount above $1 million.
The exemption for qualified family-owned small business sales is significant. However, eligibility requirements are specific. Your business must generally have less than $10 million in annual revenue. You must own at least 30% and be actively involved in management. Whether your transaction qualifies could mean the difference between zero state tax and a six-figure liability.
Alternatively, structuring a sale as an installment—spreading proceeds over multiple years—could keep each year’s income below the $1 million threshold. This approach introduces credit risk. However, the tax savings may justify the tradeoff for the right transaction.
For founders holding C-corp equity, the federal Qualified Small Business Stock (QSBS) exclusion currently carries through to Washington’s capital gains tax. Whether it also applies to income recognized under the millionaires tax remains an open question. Future regulatory guidance will need to clarify this.
As discussed above, the PTE election can effectively bypass the federal SALT cap. This makes the 9.9% state tax partially or fully deductible against federal income for qualifying businesses. For many business owners, the net cost of the Washington millionaires tax could be substantially lower than the headline rate suggests.
Work with your CPA to model the election against your specific facts. Consider entity type, number and residency of owners, income sourcing, and the interaction with your federal return.
Washington determines residency based on where you maintain your primary home, where your family lives, and where you spend the majority of your time. Establishing domicile in a no-income-tax state requires genuine relocation—not just a mailing address.
If you’re considering a move, start documenting now. Update your voter registration, driver’s license, bank accounts, and social ties. Domicile disputes typically turn on accumulated evidence over months and years, not a single event.
For executives who work remotely or split time between states, the bill apportions non-resident income based on days worked in Washington. Therefore, strategic allocation of working days could reduce Washington-source income. However, this requires meticulous record-keeping.
The charitable deduction of up to $100,000 per individual creates a meaningful incentive to structure giving proactively. Under the House version of the bill, qualifying contributions must go to Washington-based nonprofits. Donor-advised funds allow you to front-load contributions in high-income years and distribute grants over time. Charitable remainder trusts can convert appreciated assets into an income stream while generating a current deduction.
Additionally, bunching multiple years of charitable giving into a single tax year may yield better results. This approach is particularly effective for households near the $1 million threshold.
Washington’s estate planning environment is shifting simultaneously. The companion bill SB 6347 proposes rolling back the top estate tax rate from 35% to 20%. The Senate passed it 38-11 and it’s advancing through the House. The $3 million exemption threshold is maintained.
Even with a proposed rollback, Washington’s $3 million estate tax threshold remains far below the $15 million federal exemption. For business owners and executives, this creates a multi-layer challenge: income tax during earning years, capital gains on sale, and estate tax at death—all at the state level, at thresholds substantially lower than federal.
Irrevocable trusts, family limited partnerships, and spousal lifetime access trusts (SLATs) remain important tools for transferring assets outside your taxable estate. The current federal lifetime gift tax exemption of $15 million per individual creates a window to act. However, note that ING trusts will not provide Washington income tax relief under SB 6346.
Before making irreversible planning decisions, stay attuned to the legal developments. The Sustainable Advantage® approach to wealth management is built for exactly this kind of evolving landscape—integrating tax awareness into every investment and planning decision.
The bill returns to the Senate for concurrence on House amendments. If the Senate agrees, it goes to Governor Ferguson for signature. If they disagree, a conference committee will negotiate a final version.
Regardless of the legal outcome, the direction is clear. Washington is moving toward taxing high earners at rates that rival traditional income tax states. The planning window between now and January 1, 2028 is the time to evaluate your options—not after the tax takes effect.
For families and business owners across Seattle and Bellevue, Portland and Vancouver WA, and the broader Pacific Northwest, the stakes are substantial. A coordinated strategy across income timing, entity structure, charitable planning, and estate design can meaningfully reduce lifetime tax exposure.
“The two-year window between now and January 2028 is the most valuable planning opportunity Washington high earners have ever had. Every month that passes without a coordinated strategy is a month of lost optionality.”
— Northern Pacific Advisory Team
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Important Disclosures
This article is published by Northern Pacific Asset Management™ for general informational and educational purposes only. It does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security or financial product. The information presented draws from publicly available sources, including legislative text, fiscal impact statements, and third-party analysis, and is believed to be accurate as of the date of publication. Northern Pacific makes no warranties or representations regarding the completeness or accuracy of this information.
Northern Pacific Asset Management and Osaic Wealth do not provide tax or legal advice. SB 6346 has passed both chambers of the Washington State Legislature but has not yet been signed into law. The final form of the legislation may differ from what is described here. Tax laws are subject to change through legislative action, regulatory guidance, and judicial review. Consult your tax advisor or legal counsel for advice specific to your situation.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC, and SEC Registered Investment Advisor. Northern Pacific Asset Management and Osaic Wealth are separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
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