Washington Millionaires Tax: Structural Overview and Planning Considerations

The proposed Washington Millionaires Tax would represent a structural shift in Washington’s tax framework. For the first time, the state would impose a broad-based income tax on certain high-income households. 

The discussion below reflects draft legislative language and publicly available summaries as of this writing. Final statutory language, amendments, and potential litigation may materially affect scope, timing, and implementation. 

Even at the proposal stage, however, the structural implications warrant careful review. 

Key Takeaways 

• The proposal would impose a 9.9 percent tax on Washington taxable income above a $1 million threshold. 

• The tax base would begin with federal adjusted gross income, subject to state-level modifications. 

• If enacted during the 2026 legislative session, the tax is currently proposed to apply beginning with income earned in 2028. 

• Washington residents could be taxed on worldwide income; nonresidents would generally be taxed on Washington-sourced income. 

• Owners of pass-through entities would likely be taxed on their distributive share of income, consistent with federal tax principles. 

• High-income individuals and closely held business owners should consider multi-year modeling rather than reactive restructuring. 

Why This Proposal Is Structurally Significant 

Washington has historically relied on excise-based taxation, including its business and occupation tax and, more recently, its capital gains tax structured as an excise tax. 

The Washington Millionaires Tax, by contrast, is drafted as an income-based tax beginning with federal adjusted gross income. That shift carries implications beyond rate mechanics: 

• Greater sensitivity to residency determinations 

• Increased importance of sourcing rules 

• More direct interaction with federal income tax principles 

• Expanded modeling complexity for multistate and cross-border taxpayers 

This represents not simply a new rate, but a different structural framework. 

Legislative Status and Timing 

The proposal has advanced during the 2025–26 legislative session, including Senate passage of Senate Bill 6346. The bill is now under House consideration. Amendments remain possible. 

Current draft summaries indicate: 

• A 9.9 percent rate on income above $1 million. 

• A proposed effective date beginning with income earned in 2028 if enacted in 2026. 

• Indexing mechanisms may apply to the income threshold, subject to final statutory language. 

Because the bill remains under consideration, details may evolve. 

In addition, as with the Washington capital gains tax, constitutional challenges are possible, which could affect implementation timing. 

Structure of the Washington Millionaires Tax 

Tax Base 

Under draft language, Washington taxable income would begin with federal adjusted gross income (AGI). The statute would then apply state-specific additions and subtractions to determine Washington base income and Washington taxable income. 

This design mirrors traditional state income tax structures and increases reliance on federal income inclusion principles. 

Threshold and Rate 

The proposal applies a 9.9 percent rate to income exceeding $1 million. The mechanics for joint filers and certain deductions depend on final enacted language. 

Careful review of final statutory definitions will be critical. 

Residency and Sourcing 

Washington Residents 

Residents would generally be taxed on income included in Washington taxable income, potentially including worldwide income, subject to statutory definitions and modifications. 

This elevates the importance of: 

• Domicile analysis 

• Physical presence documentation 

• Multistate income allocation 

• Cross-border employment arrangements 

Nonresidents 

Nonresidents would generally be taxed only on Washington-sourced income. Sourcing rules and apportionment methodologies will be particularly relevant for: 

• Owners of pass-through entities with Washington operations 

• Executives receiving equity-based compensation 

• Multistate business operators 

Pass-Through Entity Considerations 

Because the proposed tax begins with federal AGI, owners of S corporations and partnerships would generally include their distributive share of income in the tax base, whether or not cash distributions are made. 

This treatment would be consistent with existing federal tax principles and is not unique to the proposal. However, it may produce cash-flow considerations for owners of closely held businesses that retain earnings for operations or growth. 

Entity classification decisions should not be revisited without comprehensive modeling. 

Interaction With Other Taxes 

Draft summaries indicate coordination provisions intended to mitigate double taxation, including: 

• Interaction with Washington’s existing capital gains tax 

• Credits for income taxes paid to other states, subject to statutory limitations 

Because Washington’s capital gains tax is structured as an excise tax, coordination mechanics may be technical and require careful analysis once final language is enacted. 

Modeling should evaluate combined impact across: 

• Federal income tax 

• Net investment income tax 

• Washington capital gains tax 

• Washington Millionaires Tax 

Isolated analysis may be incomplete. 

Planning Considerations 

While the legislation is not yet enacted, early modeling may provide clarity in the following areas: 

Income Timing 

• Deferred compensation 

• Equity vesting schedules 

• Anticipated liquidity events 

• Sale timing of closely held businesses 

Residency Review 

• Domicile documentation 

• Physical presence tracking 

• Nexus analysis 

• Cross-border considerations 

Entity Structure 

• Pass-through versus corporate structures 

• Distribution strategies 

• Multistate apportionment 

• Coordination with entity-level taxes in other jurisdictions 

Structural changes should follow modeling, not speculation. 

Frequently Asked Questions 

Is the Washington Millionaires Tax currently law? 

No. The proposal remains under legislative consideration. Final enactment and potential constitutional challenges may affect timing and scope. 

When would the tax take effect? 

Current draft language contemplates application beginning with income earned in 2028 if enacted in 2026. This timeline could change. 

Who would be subject to the tax? 

The proposal targets income exceeding $1 million. Final definitions of taxable income and applicable deductions depend on enacted statutory language. 

Would nonresidents be taxed? 

Nonresidents would generally be taxed on Washington-sourced income, subject to statutory sourcing rules. 

How does the tax interact with Washington’s capital gains tax? 

Draft summaries indicate coordination mechanisms intended to reduce double taxation. Final mechanics will depend on enacted statutory language and regulatory guidance. 

Should structural changes be made now? 

Structural decisions should be based on comprehensive multi-year modeling and final statutory language, not preliminary summaries.