Washington House Passes Income Tax on High Earners, Moving State Closer to Historic Policy Shift

OLYMPIA, WA — The Washington state House of Representatives on March 10 passed a landmark bill to establish a statewide income tax on individuals and households earning more than $1 million annually. The vote, which followed a marathon debate lasting over 24 hours, moves one of the few states without a broad-based income tax significantly closer to enacting one for the first time in nearly a century. This move represents a seismic shift for Washington's tax landscape, one that high-net-worth individuals and business owners cannot afford to ignore. While the tax targets income over $1 million, the complexity it introduces will ripple through the state's economy. The immediate priority for affected taxpayers is understanding the new residency rules and income sourcing definitions, which can be far from straightforward. The legislation, championed by the Democratic majority, proposes a 9.9% tax on adjusted gross income exceeding a $1 million standard deduction. If enacted, the tax would take effect on January 1, 2028, with the first payments due in 2029. Proponents estimate the measure could generate approximately $3 billion in new revenue from an estimated 20,000 households, according to documents discussed by lawmakers. The bill's passage in the House marks a major victory for progressives who have long argued that Washington's tax system is the most regressive in the nation, placing an undue burden on low and middle-income residents. "It has been a long journey here to this moment... the 93 years that Washingtonians have struggled with a grossly outdated tax structure that falls by far the heaviest on the lowest income," said House Majority Leader Joe Fitzgibbon, D-West Seattle, during the floor debate. Under the proposed law, the definition of a Washington taxpayer would be expanded. It would apply to all income of Washington state residents and to income that nonresidents derive from Washington sources. The residency test mirrors the one currently used for the state's capital gains tax, defining a resident as someone domiciled in the state or someone who maintains a home and is physically present for more than 183 days a year. The $1 million standard deduction is set to be indexed for inflation every two years. For businesses, this legislation creates significant new administrative burdens. It's not just a personal tax; employers will need to re-evaluate their payroll and withholding systems for highly compensated employees, especially those who may travel or work remotely. In our experience, navigating these state-specific tax laws requires meticulous planning to avoid compliance failures and penalties. This is precisely the type of complex challenge where professional tax preparation and compliance services become essential. We guide clients through these transitions at C&S Finance Group LLC at csfinancegroup.com. The bill includes specific provisions for nonresidents, subjecting visiting professional athletes and performers to the tax. However, it provides an exemption for nonresidents who earn income for fewer than five days of work within Washington. Additionally, taxpayers would be able to claim a credit for payments made under the state's existing capital gains tax. The bill also retains a charitable deduction of up to $100,000, but with a new stipulation that donations must be made to nonprofits based in Washington to qualify. Discussions among Senate Democrats about an income tax began intensifying in late 2025 as a potential solution to projected budget shortfalls. Senate Majority Leader Jamie Pedersen, D-Seattle, has been a key figure in the discussions, arguing that Washington must find ways to distribute its tax burden more equitably across all income levels. The revenue generated is intended to fund a significant expansion of the state's Working Families Tax Credit, potentially increasing the number of eligible households from 350,000 to 810,000. Other aspirational goals mentioned in the legislation include funding free lunches for all public school students. Despite its passage in the House, the bill's future is far from certain. Republicans mounted a fierce, round-the-clock opposition during the debate, offering numerous amendments that were ultimately rejected. The history of income tax proposals in Washington is fraught with failure; voters have repeatedly rejected such measures at the ballot box, and the state Supreme Court has previously ruled that a graduated income tax violates the state constitution's uniformity clause. While legal challenges will certainly follow, the legislative intent is clear. Our view is that business owners and high-income individuals should operate under the assumption that some form of this tax will eventually be implemented. Proactive planning, rather than a wait-and-see approach, is the only prudent course of action to mitigate future tax liabilities and ensure compliance. The legislation now returns to the state Senate for a final vote to concur with changes made in the House. Should it pass, it will proceed to the governor, who has indicated he will sign it into law. Observers on all sides expect an immediate legal battle and a potential referendum effort, setting the stage for a prolonged fight over the future of taxation in the Evergreen State.