Washington’s Proposed Millionaires’ Tax: 2026 Update and Legal Analysis

Washington state’s tax system has long been criticized as regressive because it relies heavily on sales and excise taxes and places a greater burden on low, and middle‑income households. In December 2025, Governor Bob Ferguson announced his support for a millionaires’ tax that would impose a state income tax on individuals earning more than $1 million in a single year. He emphasized that the revenue from such a tax should not be used to solve short‑term budget gaps but instead should return money to working families and small business owners through expansions of the Working Families Tax Credit (WFTC) and reductions in the business and occupation (B&O) tax. Legislative leaders introduced Senate Bill 6346 and House Bill 2724 during the 2026 session, marking the state’s most serious consideration of a personal income tax in nearly a century.

Key Provisions of SB 6346/HB 2724

• Rate: 9.9 percent. The tax is imposed on annual Washington taxable income in excess of $1 million. The $1 million threshold applies per household; married couples and registered domestic partners must combine their income, effectively subjecting joint filers to the same $1 million standard deduction.
• Effective Date: If enacted, the tax would apply to income earned on or after January 1 2028, with tax payments beginning in 2029.
• Standard Deduction: A $1 million standard deduction is allowed per taxpayer. Married couples or registered domestic partners share a single $1 million deduction. The deduction is adjusted annually for inflation beginning in 2030.
• Rate Adjustments: There is no automatic mechanism to lower the threshold, but critics note that future legislatures could reduce the standard deduction by simple majority. Business groups argue this creates a “marriage penalty” and may expose mid‑sized businesses to the tax.

Starting Point: Federal AGI with Add‑backs and Subtractions

The tax base begins with the taxpayer’s federal adjusted gross income (AGI), then modifies it with certain add‑backs and deductions:

• Add‑backs: Non‑business state and local taxes and the federal deduction for state income taxes paid by pass‑through entities must be added back. These provisions are intended to prevent taxpayers from reducing state taxable income by electing to pay the federal tax at the entity
• Subtractions: The bill provides a standard deduction of $1 million per taxpayer, an optional charitable contribution deduction up to $100,000 (inflation‑indexed), and credits for taxes paid to other states, Washington’s capital gains tax, and B&O taxes.
• Exemptions: Income from sales of real property, family‑owned businesses, certain retirement income, and federal disaster or working capital grants are excluded.
• Small Business Election: Pass‑through entities can elect to pay the tax at the entity level; owners receive a credit but must add back the deduction in computing their personal taxable income.

Residency and Apportionment Rules

Washington’s income tax would apply to residents and to nonresidents with Washington‑source income. Determining residency is critical:

• Domicile Test: A person domiciled in Washington is a resident unless they do not maintain a permanent place of abode in Washington, have a permanent abode elsewhere, and spend fewer than 30 days in Washington during the year.
• 183‑Day Rule: Non‑domiciliaries become residents if they maintain a place of abode in Washington and are present in the state more than 183 days during the year. Partial days count as full days.
• Apportionment: Nonresidents are taxed only on Washington‑source income. Wages are apportioned based on days worked in Washington, while income from intangible property (e.g., interest, dividends, capital gains) is sourced to Washington if the taxpayer is domiciled here.
• Professional Athletes and Performers: Income is apportioned using a duty‑day formula, requiring careful tracking of days spent performing or competing in Washington.

Credits and Deductions

SB 6346 includes several credits to mitigate double taxation and interactions with existing taxes:

• Credit for Taxes Paid to Other States: Taxpayers may claim a credit for income taxes paid to other states on the same income.
• Credit for Washington Capital Gains Tax: Amounts paid under Washington’s 7 percent capital gains tax may be credited against the millionaires’ tax, preventing duplication.
• Credit for B&O Taxes Paid: Business owners may credit a portion of their B&O taxes against their millionaires’ tax liability.
• Charitable Deduction: Taxpayers may deduct up to $100,000 of charitable contributions (indexed for inflation) from their Washington taxable income.

Revenue Allocation and Tax Relief Measures

Proponents argue that the tax would generate in excess of $4 billion annually. SB 6346 directs the revenue as follows:

• Public Defense (7%): The first 7 percent of receipts funds public defense services at the local level.
• Working Families Tax Credit (WFTC): A significant portion expands and enhances the WFTC, potentially including individuals as young as 18. Governor Ferguson seeks to further expand eligibility and increase payments by 30 percent.
• Small‑Business B&O Tax Relief: The bill increases the B&O tax credit for small businesses from $250,000 to $600,000 in gross receipts; Ferguson has called for eliminating B&O taxes on businesses with up to $1 million in revenue.
• Sales Tax Exemptions: The Senate version would exempt personal hygiene products (e.g., shampoo, deodorant) from sales tax. Governor Ferguson has also proposed two annual sales tax holidays during which consumers would not pay sales tax on items under $1,000, potentially returning $141 million to consumers annually.
• General Fund: After these allocations, the remaining revenue flows to the state’s general fund for education, health care, housing and other programs.
• B&O Surcharge Expiration: The existing 0.5% B&O surcharge on businesses with Washington annual revenues exceeding $250 million will expire at the end of 2029.

Legislative Status as of April 2026

• The Washington Senate passed SB 6346 on February 16, 2026 by a 27‑22 vote, with three Democrats joining all Republicans in opposition.
• The House passed the amended bill on March 9, 2026 by a 51-46 vote, after which the Senate concurred in the House amendments. The enrolled bill was delivered to Governor Ferguson on March 13, 2026.
• Governor Ferguson signed the bill into law on March 30, 2026, creating Washington’s first broad-based personal income tax in state history.
• The law takes effect January 1, 2028, with initial tax payments and estimated payments due beginning in 2029.

Constitutional and Legal Considerations

Existing Prohibitions on Income Taxes

Washington’s constitution does not explicitly prohibit income taxes; however, in 1933 the state Supreme Court held that income is a form of property and that a graduated income tax violates the constitutional requirement that property be taxed uniformly and at a maximum rate of 1 percent. Consequently, successive attempts to enact an income tax have failed, either at the ballot box or in the courts. Voters have rejected income‑tax measures at least ten times, and the Legislature’s 2024 adoption of Initiative 2111 prohibits “taxes on personal income” unless specifically authorized.

Structuring the Tax as a Levy on the Receipt of Income

SB 6346 defines the tax as a levy on the receipt of income, analogous to Washington’s capital gains tax (upheld by the state Supreme Court in 2023), to avoid characterization as a property tax. Supporters contend that, like the capital gains tax, the millionaires’ tax is an excise on the act of receiving income rather than a tax on property. Critics argue that the measure will inevitably face litigation and that overturning the 1933 precedent may require a constitutional amendment.

Anti‑Referendum Clause

The bill includes a provision declaring the tax “necessary for the support of the state government” and thus exempt from the referendum process, meaning voters could not overturn it through a ballot referendum. Opponents claim this clause undermines direct democracy and ensures the tax, if enacted, would remain in place until repealed by a future legislature.

Active Legal Challenges

Legal challenges to SB 6346 began immediately after signing. The Citizen Action Defense Fund, represented by former Washington Attorney General Rob McKenna and former Washington Supreme Court Justice Phil Talmadge, has filed a constitutional challenge arguing the tax violates the state constitution’s uniformity clause under the 1933 Culliton v. Chase precedent. Separately, Let’s Go Washington filed suit after the Secretary of State rejected its referendum filing, arguing that the legislature’s use of a “necessity clause” to shield the law from a voter referendum was unconstitutional. The Washington Supreme Court has agreed to fast-track the referendum case, with an en banc conference scheduled for April 30, 2026. A decision on whether signature gathering for a ballot repeal can proceed is expected shortly thereafter. Opponents are pursuing what has been described as a three-pronged strategy: a constitutional challenge, a referendum, and a citizen initiative to repeal the tax.

Practical Considerations for High‑Income Individuals and Business Owners

• Residency Planning: High earners with ties to multiple states must carefully track days spent in Washington and maintain documentation supporting their domicile elsewhere. The 30‑day rule for domiciled individuals and 183‑day rule for non‑domiciliaries require meticulous record‑keeping.
• Income Sourcing: Nonresidents with significant Washington‑source earnings, professional athletes, performing artists, executives working remotely, should expect apportionment based on days worked in the state. Income from intangible assets may be taxed if the taxpayer is domiciled in Washington.
• Business Structures: Owners of pass‑through entities should evaluate whether electing to pay the tax at the entity level would reduce administrative complexity. However, entity‑level payments must be added back when computing personal Washington taxable income.
• Charitable Contributions and Credits: High‑income taxpayers should consider maximizing charitable contributions (up to the $100,000 deduction) and tracking credits for taxes paid to other states or under the capital gains tax.
• Potential Marriage Penalty: Because couples share a single $1 million standard deduction, spouses earning comparable incomes could face a lower effective threshold than two unmarried partners. Estate and marital planning strategies may need to address this risk.
• Legal Uncertainty: Given anticipated litigation, any tax planning should account for the possibility that the law could be delayed, overturned, or modified. Businesses considering relocation or restructuring should weigh potential tax savings against operational costs and other state taxes.

Filing and Estimated Payment Requirements

Taxpayers with an estimated annualized Washington tax liability exceeding $5,000 who are already required to make federal estimated payments must also make estimated payments under the millionaires’ tax. Estimated payments mirror federal due dates and are not required before July 1, 2029. Returns must be filed electronically by the same date as the federal income tax return, with a six-month extension available if a federal extension is also requested. Late filing penalties of 5% of tax owed per month, up to a maximum of 25%, may be imposed, along with applicable interest.

Conclusion

Washington’s proposed millionaires’ tax represents a significant departure from the state’s historical aversion to income taxation. The legislation would levy a 9.9 percent tax on annual income above $1 million, starting in 2028, with revenues earmarked for public defense, expansions of the Working Families Tax Credit, small‑business tax relief and sales‑tax exemptions. Although the Senate has approved the bill, the measure faces an uncertain path in the House and almost certain constitutional challenges. High‑income individuals, business owners, and professional athletes with ties to Washington should monitor this legislation closely and consult experienced counsel to develop tax‑efficient strategies that align with their residency, business operations and philanthropic goals.

Our attorneys at NorthStar Law Group, P.S., we continue to track developments in Olympia and the courts. If you have questions about how Washington’s proposed millionaires’ tax might affect your personal or business tax planning, please contact us for tailored legal advice.