On March 11, 2026, the Washington legislature approved S.B. 6346, creating an income tax on individuals. The legislation is often referred to as the “Millionaires’ Tax” due to the $1 million standard deduction. Gov. Bob Ferguson signed the legislation into law on March 30, 2026 as Chapter 238, L. 26.(Opens a new window)(Opens a new window)

Background

Currently, Washington does not tax individuals on their income. Article VII of the Washington State Constitution states that “all taxes shall be uniform upon the same class of property.” In Culliton v. Chase,(Opens a new window)(Opens a new window) a landmark 1933 case, the Washington State Supreme Court interpreted Article VII to prohibit a graduated income tax that subjected savings and loan associations to a different rate than banks organized as corporations. The Court found that income is property and thus could not be taxed at a graduated rate. This ruling has been used to invalidate several attempts at taxing individual income in Washington, most recently in Kunath v. City of Seattle(Opens a new window)(Opens a new window), which invalidated a municipal income tax on high earners in Seattle in 2019 because it was not uniformly applied to all income.

Income tax changes

The legislation imposes a flat 9.9% income tax effective Jan. 1, 2028 with the first payments due in April 2029. Taxpayers with an estimated tax liability of $5,000 or more are required to make estimated payments; however, no estimated payments are required prior to July 1, 2029. The tax would be applied on all individual income, subject to a $1 million standard deduction applied to an individual filer’s income. For spouses or state-registered domestic partners, the deduction remains $1 million and is not doubled, regardless of whether they file joint or separate returns. 

The legislation also establishes a credit for any state long-term capital gain excise tax paid in the same year so that the same income is not being taxed twice. Effective Jan. 1, 2025(Opens a new window)(Opens a new window), the Washington excise tax is imposed on gains up to $1 million at a rate of 7%; any gains over $1 million are taxed at a rate of 9.9%. The credit in the new legislation mirrors the higher-level excise tax on capital gains to prevent double taxation.

Residents, nonresidents, and athletes

The new tax regime applies to both residents and nonresidents. It contains allocation and apportionment rules for part-year residents and special rules for nonresident professional athletes and student athletes. Generally, nonresidents source their compensation based on where the employment services are performed. Non-compensation income from business activity is apportioned to the state using a single sales factor apportionment methodology and market-based sourcing for sales of services and non-tangible personal property. 

Nonresident professional athletes will source their income based on the duty-day methodology and all sports teams will be required to file a report indicating the team members reasonably assumed to owe tax in the state. Nonresident student athletes will source to Washington any income from the use of their name, image or likeness (NIL) if the related publicity services creating the income primarily occur in the state. Alternatively, if the nonresident student athlete is paid a percentage of revenue by a higher education institution that income should be sourced to Washington based on the duty-day methodology.

Pass-through entity tax election

The legislation also adopts a pass-through entity tax election (PTET) and allows a credit for income taxes paid to other states. The PTET provides owners of the electing entity a credit for state taxes paid at the entity level. The credit may be claimed on the individual tax return and applied against the Washington income tax liability. Like other states’ PTETs, the tax paid at the entity level is intended to be deducted as a business expense for federal income tax purposes, thereby minimizing the tax effect of the federal SALT deduction limitation.

Other credits and modifications

In addition, the legislation expands the state’s working families tax credit, allowing people as young as 18 to qualify and lowering income requirements. The legislation creates nonrefundable credits against income that would also be subject to the business and occupation or public utility taxes.

The new income tax regime provides other adjustments and expansions; when calculating the new taxable income, various modifications need to be applied, including potential adjustments to federal long-term capital gains and losses, state income taxes paid, charitable contribution deductions (up to $100,000), and pass-through entity tax expenses. 

What does CohnReznick think? 

The new tax regime will have a significant impact for individuals with annual income over $1 million, including nonresidents and professional and student athletes, who will need to start tracking their duty days. Student athletes will also need to determine the share of NIL income that comes from publicity primarily occurring in Washington. The legislation provides some relief in the form of the PTET election, which can be effective at minimizing the tax effect of the federal SALT deduction limitation. All of these issues bring residency to the forefront for individuals who live or work in Washington. Despite the fact that multiple interest groups have already stated their intent to challenge the new tax in court, citing Culliton v. Chase as precedent, it is important to consider the timing and impact of the new tax on applicable individuals because litigation may not be resolved prior to the effective date of the legislation.