Washington State Legislative Update: Proposed “Millionaire Income Tax”
We want to make you aware of a potential tax development in Washington State that may affect some high-income households.
Yesterday, Washington advanced legislation that would create a new state income tax on high earners, often referred to as the “Millionaires’ Tax.” The proposal represents a notable shift in Washington’s tax policy, as the state has historically operated without a broad personal income tax.
For the bill to become law, it must first return to the Senate for agreement on changes before going to Gov. Bob Ferguson, who has said he’ll sign it. After that, challenges in court and at the ballot box are expected.
We are closely monitoring the legislation and evaluating potential planning considerations for Washington residents.
Key Highlights
- The proposal would impose a 9.9% tax on personal income above $1 million annually.
- The tax would apply only to income above the $1 million threshold. For example, a household earning $1.5 million would be taxed only on the final $500,000.
- Married couples would share a single $1 million threshold, rather than receiving a doubled exemption for joint filers (opponents are referring to this as a “marriage penalty”).
- The tax is currently structured to take effect January 1, 2028, with the first filings and payments expected in 2029 based on 2028 income.
- The $1 million threshold would be adjusted periodically for inflation.
- Lawmakers estimate the tax would affect fewer than 1% of Washington households and generate approximately $3.5–$3.7 billion annually once implemented.
Additional Changes Included in the Proposal
The broader legislation also includes several tax adjustments intended to reduce taxes in other areas, including:
- Expanding Business & Occupation (B&O) tax exemptions for smaller businesses
- Fully exempting certain small businesses from B&O tax liability
- Eliminating sales tax on diapers and certain personal hygiene products
- Removing sales tax on many over-the-counter medications
What This Means for You
If implemented, this proposal would primarily affect households with annual income exceeding $1 million, including those with income from:
- Business ownership or partnership income
- Equity compensation (RSUs, options, etc.)
- Significant investment income
- Liquidity events such as a business sale
Because the tax is not scheduled to take effect until 2028, there is time to evaluate potential planning considerations if the legislation ultimately becomes law.
For households with more complex financial situations, this may be a timely opportunity to revisit long-term tax strategy around income timing, equity compensation, liquidity events, domicile and multi-state residency planning. As always, thoughtful planning done well in advance of major income events can help ensure decisions are made deliberately rather than reactively.
How We Can Help
Our team continuously monitors changes in tax policy and works alongside your CPA and estate planning professionals to ensure your strategy remains aligned with evolving laws.
As more details emerge, we will continue evaluating how this proposal may impact our clients and will reach out directly if planning adjustments may be warranted.
If you have questions or would like to discuss how this could affect your long-term planning, please don’t hesitate to reach out.
With Optimism,
Tschetter Group Planning Department
Sources & References
Office of the Governor – Statement from Governor Bob Ferguson on revised millionaires’ tax proposal
Important Disclosures
The content of this article is provided for general information purposes only and is presented solely as our opinion. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee its accuracy, completeness, or timeliness. This article is based on the information available to us as of the date of this article and may change at any time. Tschetter Group does not provide tax and legal advice. Please consult your legal and tax professional for specific information.
Tschetter Group (“TG”) is a registered investment adviser with the Securities and Exchange Commission. The information provided by TG (or any portion thereof) may not be copied or distributed without TG’s prior written approval. All statements are current as of the date written and does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Different types of investments involve varying degrees of risk. Risk Disclosure Statement: All investments include a risk of loss that clients should be prepared to bear.
