Alert

The Washington State legislature passed SB 6346, significantly altering Washington’s tax system by imposing an income tax on specific high-income individuals. Governor Bob Ferguson, who expressed support for the tax earlier this year, signed the historic tax bill on March 30, 2026.

Although the millionaire’s tax has garnered considerable attention this legislative session, Washington lawmakers and Governor Ferguson have also approved other important tax changes related to reducing the estate tax rates and technical corrections on services newly subject to retail sales tax.

The Millionaire’s Tax

The legislation, introduced on February 4, 2026, seeks to reform the Washington tax code with the objective of establishing a fair and balanced tax system designed to promote the state's economic success, as outlined by the legislature.

Specifically, beginning January 1, 2028, the new tax imposes a 9.9% rate on the receipt of an individual’s Washington taxable income exceeding $1 million in a given year. Washington taxable income is defined as Washington base income as modified by the legislation.

Key Modifications

Standard Deduction

The standard deduction is $1 million per individual, or in the case of spouses or domestic partners, their combined standard deduction is limited to $1 million regardless of filing status. For nonresidents, the standard deduction is reduced based on a ratio. The numerator is the individual’s Washington base income and the denominator is the individual’s federal adjusted gross income (AGI) from all sources. The standard deduction is subject to change based on inflation.

Long-Term Capital Gains and Losses

Long-term capital gains must be deducted and long-term capital losses must be added back to a taxpayer’s federal AGI. Further, a taxpayer must add to the taxpayer’s federal AGI the amount of Washington capital gains subject to the Washington capital gains tax plus the capital gains standard deduction.

Pass-Through Entity Tax Payments

Taxpayers must add back their distributive share of the pass-through entity tax (PTET) expense to the extent the expense was deducted in calculating federal AGI.

Charitable Contributions

The charitable contribution deduction is limited to $100,000 for individuals and spouses or domestic partners, regardless of filing status.

State and Local Taxes

A taxpayer must add back state and local taxes measured by net income which were deducted in computing federal AGI.

Key Available Credits

Credit for Taxes Paid to Another Jurisdiction

Resident individuals are allowed a credit for income tax paid to another state on the same income. Specifically, the credit is allowed only for taxes paid by the individual or a pass-through entity in which the individual is an owner, to the other jurisdiction on the net income from sources in the other jurisdiction that are included in Washington income.

Credit for Business and Occupation (B&O) and Public Utility Taxes

Public utility tax and B&O tax paid to Washington imposed on base income included in the measure of the millionaire’s tax may be eligible as a credit against this tax.

Credit for Capital Gains Taxes

The legislation allows for a nonrefundable credit for the amount of tax imposed by the Washington capital gains tax for the same year.

Credit for PTET Payments

The legislation also adds a nonrefundable credit for tax expenses incurred by a pass-through entity that made the PTET election provided for in the legislation. For residents, this amount must be reduced by the amount claimed for a credit for taxes paid to another state. Any unused credit may not be carried forward or backward to another taxable year and no refunds will be granted for unused credits.

Nonresident Individuals

For resident individuals, all income must be allocated to Washington. However, for nonresident individuals, only Washington-derived income is subject to the millionaire’s tax.

The legislation details what generally is deemed Washington-sourced income, including:

• Wages and other compensation from employment in Washington
• Compensation attributable to professional athletics
• Income of a nonresident student athlete derived from the commercial use of the student athlete’s name, image, or likeness
• Amounts attributable to any business, trade, profession, or occupation carried on in Washington, including an individual's distributive share of income from a pass-through entity operating in Washington
• Rents, short-term gains, and other amounts attributable to the ownership or disposition of any interest in real or tangible personal property in Washington
• Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property to the extent that the intangible personal property was employed in a business, trade, profession, or occupation carried on within Washington
• Income from wagering transactions

Notably, the legislation details that if a nonresident individual performs services in Washington five or fewer days cumulatively in a calendar year, no income will be allocated to Washington.

This exception does not apply to nonresidents:

• Professional athletes
• Student athletes
• Entertainers

The legislation also details the rules for sourcing and apportioning nonresident income from business activity conducted in Washington.  

PTET Election

The legislation includes a PTET election beginning January 1, 2028, which allows a pass-through entity to elect to pay the millionaire’s tax at the entity level on behalf of its participating owners. The election is made annually by June 15 of the taxable year and is irrevocable for the taxable year.

A pass-through entity includes a partnership, limited liability company, or S corporation which reports out the distributive share of taxable income to its partners, members, or shareholders for federal income tax purposes.

Additional Legislative Changes

Additional significant legislation was enacted.

Changes to Estate Tax Rates

The governor signed SB 6347 March 24, 2026. The legislation reduces estate tax rates for estates of decedents dying on or after July 1, 2026.

Changes to Newly Enacted Retail Services

Among other changes, SB 6113 incorporates technical and administrative corrections pertaining to services that became subject to retail sales tax by SB 5814 effective October 1, 2025. Corrections include but aren’t limited to:

• For sourcing of advertising services, in the event a person is unable to source advertising services to the local level due to a lack of information, the person must source the services statewide in a manner prescribed by the department
• Additional details on what isn’t a taxable live presentation, such as classes provided by various schools, youth camps, and presentations given at the physical location of a facility exempt from property tax
• Clarification that temporary staffing services do not include paymaster services

Notably, SB 6113 included a penalty waiver for specific taxpayers who inadvertently fail to collect retail sales tax on certain select services enacted under SB 5814 (2025), when specific conditions are met, outlined in section 23 of SB 6113. The penalty waiver was for tax reporting periods through December 31, 2026. Governor Ferguson vetoed section 23 of SB 6113 and this relief wasn’t enacted.

What’s Next?

The latest legislative session has again introduced substantial changes to the Washington taxing regime.

Certain legislation, such as estate tax rate reductions, may benefit taxpayers, whereas the enactment of new measures—including a potential millionaire’s tax—could add further complexity to many Washington taxpayers.

Notably, the millionaire’s tax will likely face legal challenges and potentially require an amendment to the state’s constitution. It’s advisable for Washington taxpayers to review the newly enacted legislation detailed above closely and evaluate the potential impact on their state tax filings.

We’re Here to Help

For more information or help with the proposed millionaire’s tax and other Washington tax updates, contact your firm professional.

Additional Resources

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• Tax Practice