Washington's New 9.9% Millionaires' Tax Is Official: The 2028 Deadline That Has High Earners Planning Their Exit Now

Introduction: The "No Income Tax State" Era Is Over in Washington

For decades, Washington sold itself on one simple promise: no state income tax. Amazon, Microsoft, and an entire generation of tech wealth grew up under that promise. Founders sold companies, executives exercised options, and retirees harvested gains — all without sending a dime of income tax to Olympia.

That era is officially closing. In March 2026, Governor Bob Ferguson signed S.B. 6346, creating a 9.9% tax on Washington taxable income above $1 million per household, effective January 1, 2028. And on May 15, 2026, the Washington Supreme Court blocked the referendum challenge that opponents hoped would put the tax on the ballot. The path is now clear: first returns and payments are due in 2029 for tax year 2028.

If Maryland's 2026 overhaul made it the most expensive state on the East Coast for high earners, Washington just executed the same playbook on the West Coast — except it did it in a state whose entire identity was built on not having an income tax. For high earners, the question is no longer whether Washington taxes the wealthy. It's whether you'll still be a Washington tax resident when the bill comes due.

This guide covers what S.B. 6346 actually does, who it reaches (including people who don't live in Washington), how it stacks on top of the existing capital gains tax, what the companion estate tax bill changes, and — most importantly — what the 18-month window before January 1, 2028 means for anyone planning a business sale, an IPO, or a permanent move.

What S.B. 6346 Actually Does

The mechanics matter, because the tax reaches further than the "millionaires' tax" branding suggests.

The rate and threshold. Starting January 1, 2028, Washington will impose a 9.9% tax on Washington taxable income exceeding $1 million per household. The $1 million threshold works like a standard deduction shared between spouses and registered domestic partners, and it will be indexed for inflation every other year beginning in 2029.

Who it applies to. The tax covers three groups: full-year Washington residents, part-year residents, and — this is the part most people miss — nonresidents with Washington-source income. You can live in Boise or Austin and still owe Washington's millionaires' tax if you have business interests, employment compensation, investment income, or pass-through entity income connected to the state.

How part-year residents are treated. If you move out of Washington mid-year, you allocate income between your residency and non-residency periods. During the months you were a resident, your total adjusted gross income counts toward the threshold. After you leave, only Washington-source income counts. The $1 million deduction is prorated based on the ratio of your Washington base income to your federal AGI. Translation: the exact date you stop being a Washington resident directly determines how much of your income the state can tax — which means your day count and your domicile evidence are the whole ballgame.

Add-backs and credits. The bill requires adding back capital gains taxes, income from incomplete non-grantor (ING) trusts — a popular pre-sale planning vehicle that Washington just neutralized — and pass-through entity tax (PTET) deductions. It offers non-refundable credits for Washington's capital gains tax, B&O taxes, other states' income taxes, and PTET payments, but those credits cannot be carried forward. S.B. 6346 also creates a PTET election allowing partnerships and S corporations to pay the tax at the entity level on behalf of owners.

Filing timeline. First returns and final payments are due in 2029 for tax year 2028. Estimated payments begin July 1, 2029, following the federal framework, though no estimates are required if annual liability is under $5,000.

How Washington Got Here: From "Constitutionally Impossible" to 9.9% in Five Years

Washington's constitution has historically been the firewall against an income tax. In Culliton v. Chehalis (1933), the state Supreme Court held that income is property, and the state constitution requires property to be taxed uniformly at no more than 1% — which made a progressive income tax effectively impossible for ninety years.

The workaround arrived in 2021, when the legislature passed a 7% tax on long-term capital gains above roughly $250,000 and labeled it an "excise tax" rather than an income tax. In Quinn v. Washington (2023), the state Supreme Court accepted that framing and upheld the tax. The U.S. Supreme Court declined to hear the appeal. That ruling cracked the firewall.

The legislature moved quickly through the opening. In 2025, it added a 2.9% surcharge on capital gains above $1 million — bringing the top capital gains rate to 9.9% — and temporarily raised the estate tax top rate to 35%, the highest in the nation. You can confirm the current capital gains structure on the Washington Department of Revenue's capital gains tax page.

S.B. 6346 is the logical endpoint: a broad tax on high incomes, structured to survive the same constitutional gauntlet. Whether it actually will is an open question — more on that below — but the legislative direction is unmistakable. Washington has gone from zero taxation of individual income to a 9.9% top-end regime in five years.

The Referendum Is Dead: Why May 15, 2026 Changed the Calculus

Until last month, high earners had a plausible reason to wait. Opponents were organizing a referendum to put S.B. 6346 in front of voters, and Washington voters have rejected income tax measures ten times over the past century.

That option is gone. On May 15, 2026, the Washington Supreme Court ruled the millionaires' tax exempt from the referendum process, clearing it to take effect on schedule. The practical consequence: anyone who was "waiting to see if it sticks" no longer has that excuse. The tax is law, the effective date is January 1, 2028, and the only remaining uncertainty is a future constitutional challenge with no guaranteed timeline or outcome.

Planning around a hoped-for court rescue is not a strategy. Planning around the calendar is.

Who Actually Gets Hit: Four Scenarios

The founder with a pending exit. You own a Seattle SaaS company and expect to sell in 2028 or 2029 for $20 million. Under current law, you'd owe Washington's capital gains tax — 7% on gains above the standard deduction, plus 2.9% on gains above $1 million. Now layer S.B. 6346 on top. The bill provides a credit for capital gains tax paid to mitigate double taxation, but the add-back and credit mechanics mean large gains can still face a combined state burden approaching 20% before the credit math resolves — on a transaction that would have been state-tax-free in 2020.

The executive with equity compensation. RSU vesting events and option exercises are ordinary income. A Microsoft or Amazon executive clearing $2 million in a vesting year will owe 9.9% on the second million — roughly $99,000 per year — for income that was never previously taxed by the state.

The nonresident with Washington ties. You moved to Nevada in 2024 but kept your stake in a Washington pass-through entity. Your distributive share is Washington-source income. If it exceeds the prorated threshold, you owe the millionaires' tax without setting foot in the state — the same trap we covered in the convenience-of-the-employer rule guide, wearing a different costume.

The retiree harvesting gains. A retired couple in Bellevue rebalancing a concentrated stock position can clear $1 million in a single tax year without feeling rich. The threshold is per household, not per person, and it does not care whether the income is recurring.

The Stacking Math: A Worked Example

Abstract percentages hide the real damage, so consider a concrete case. A Seattle founder sells her company in 2028 and recognizes a $10 million long-term capital gain.

Under the existing capital gains regime, the first roughly $270,000 (the inflation-adjusted standard deduction) is exempt, the next tranche up to $1 million is taxed at 7%, and everything above $1 million carries the combined 9.9% rate. That's roughly $940,000 in Washington capital gains tax on this sale — before S.B. 6346 even enters the picture.

Now the millionaires' tax. Her Washington taxable income for the year is well past the $1 million household deduction, putting roughly $9 million into the 9.9% bracket — about $891,000 of additional gross liability. S.B. 6346 does provide a credit for the capital gains tax paid, which prevents pure double taxation, but the credit is non-refundable, cannot be carried forward, and the add-back mechanics mean the two regimes don't simply cancel out.

Depending on how the Department of Revenue's implementing guidance resolves the ordering rules, her combined effective state burden on the sale lands somewhere between 9.9% and the high teens — on a transaction that would have cost her $0 in state tax in 2020 and roughly $940,000 in 2027.

The same sale closed from a Nevada or Texas domicile, with Washington ties properly

severed and the entity's income not Washington-sourced: $0. That delta — potentially $1 million or more on a single transaction — is why the 18-month window matters more than any other planning fact in this article. And it's why Washington will fight hard over exactly where she was domiciled, and exactly how many days she spent in the state, in the year it happened.

The Estate Tax Side: S.B. 6347's Partial Retreat

The companion bill, S.B. 6347, is the rare piece of good news. It rolls the estate tax top rate back from 35% to 20% for decedents dying on or after July 1, 2026 — undoing the 2025 increase after just one year. The $3 million exclusion remains, with the top rate applying to taxable estates of $9 million and up, and the exclusion will not adjust for inflation.

Two caveats before celebrating. First, a 20% top rate on a $3 million exclusion is still one of the more aggressive estate tax regimes in the country — and meaningfully harsher than the federal exemption. Second, estate tax follows domicile, not just day counts. If you "move" to Nevada but Washington can argue you never truly abandoned your Washington domicile, your heirs inherit the fight. We covered exactly how that goes wrong in The Estate Tax Domicile Trap — Washington now belongs on that list of states to take seriously.

The Constitutionality Wildcard (and Why You Shouldn't Bet On It)

Tax professionals widely expect a constitutional challenge to S.B. 6346 under the Culliton uniformity doctrine, and the challenge has real substance: unlike the capital gains tax, this is hard to characterize as anything other than a tax on income. BDO's analysis notes that legal challenges are anticipated and could affect the tax before its effective date.

But consider the recent track record. The capital gains tax was also "obviously unconstitutional" according to its opponents — until the state Supreme Court upheld it in 2023. The referendum challenge to S.B. 6346 was supposed to be a layup — until the same court blocked it last month. Betting your seven-figure liquidity event on a favorable ruling from a court that has sided with the state twice in three years is not planning. It's hoping.

The rational approach: model your exposure as if the tax takes effect on schedule, and treat any future judicial relief as upside.

The 18-Month Window: Timing Liquidity Events and Exits

Here is the math that matters. The tax applies to income recognized on or after January 1, 2028. Today is June 2026. That leaves roughly 18 months to do one of two things:

Option 1: Accelerate the transaction. If a business sale, secondary sale, or major gain harvest can close before December 31, 2027, the millionaires' tax never touches it (though the capital gains tax still does). Sellers who control timing should be having this conversation with their deal counsel now — M&A processes routinely take 9–12 months, and 2027 will see a crowded exit calendar for exactly this reason. We saw the same pre-deadline rush before Maryland's 2026 changes and Massachusetts' millionaire surtax.

Option 2: Change residency before the income hits. If the liquidity event can't move, you can. Establish domicile in a no-income-tax state — Nevada, Texas, Florida, Wyoming, South Dakota — before January 1, 2028, and sever Washington residency cleanly, and the millionaires' tax applies only to whatever Washington-source income remains. Our Florida residency guide walks through the full establishment process; the mechanics are similar for Nevada and Texas, which are the natural destinations for Washington leavers.

The critical detail: a move in November 2027 that looks like a tax dodge will be treated like one. States routinely challenge residency changes made on the eve of liquidity events, and the proximity between your move date and your transaction date is Exhibit A. The earlier and more complete the move, the stronger the position. Twelve clean months of new-state residency before a sale is dramatically more defensible than six weeks.

How Washington Will Track You

Do not assume Washington's Department of Revenue will be a gentler auditor than New York or California just because the income tax is new. The state already runs residency enforcement for its capital gains and estate taxes, and S.B. 6346 gives it nine-figure incentives to expand that machine. BDO's guidance is blunt: domicile and residency determinations will receive heightened scrutiny, and individuals should be prepared to support changes with objective evidence — property, voter registration, driver's license, and time spent in every state.

Expect the modern audit toolkit: subpoenaed cell phone location records, credit and debit card transaction histories, utility and smart meter data, EZ-Pass and ferry records, even veterinary and gym check-ins. We documented the full arsenal in How States Use Your Smart Meter and Cell Phone Data Against You. Washington has a particular advantage: as a part-year allocation regime, every disputed day shifts real dollars between "total AGI counts" and "only Washington-source income counts."

That makes contemporaneous day tracking the single highest-leverage piece of evidence you control. A reconstructed calendar built two years later from memory and credit card statements loses audits. A GPS-verified daily log, exported as an audit-ready report, wins them. That is precisely what iReside was built for — automatic location tracking, day counts per state, and PDF reports designed for exactly this fight.

The Exit Playbook: A Pre-2028 Checklist

If you're a Washington high earner planning to leave, here's the sequence:

1. Pick the destination and acquire the home base. Nevada and Texas are the closest no-tax options; Florida remains the gold standard for domicile law. Buy or lease a residence that is plausibly your primary home — not a studio apartment next to a 5,000-square-foot Mercer Island house you kept.

2. Move the legal anchors within 30 days. Driver's license, vehicle registration, voter registration, and (where available) a declaration of domicile. Update your estate plan to recite your new domicile.

3. Sever the Washington ties that auditors weight most. Resign from Washington boards and clubs, move primary banking and medical relationships, relocate items of sentimental value — the "near and dear" doctrine is real in domicile disputes.

4. Decide what happens to the Washington house. Selling is the cleanest signal. Keeping it is survivable, but it raises the evidentiary bar for everything else.

5. Start tracking days immediately — before you move. Your part-year allocation in the move year, and your defense in every year after, depends on a credible daily record. Begin building it now so the record predates any audit.

6. Map your Washington-source income. Pass-through interests, deferred compensation, and equity in Washington entities can keep you in the tax's reach even as a nonresident. This is where a SALT-specialized CPA earns their fee.

7. Coordinate transaction timing with the move. If a sale is coming, put as much distance as possible between your residency change and the closing date.

Frequently Asked Questions

When does Washington's millionaires' tax take effect? January 1, 2028. First returns and payments are due in 2029, with estimated payments beginning July 1, 2029.

What is the rate and threshold? 9.9% on Washington taxable income above $1 million per household. The threshold is shared between spouses and indexed for inflation every other year starting in 2029.

Does it apply if I don't live in Washington? It can. Nonresidents owe the tax on Washington-source income — including pass-through business income and compensation connected to the state.

Can the tax still be overturned? A constitutional challenge is expected, but the referendum route is dead as of the May 15, 2026 Supreme Court ruling, and the same court upheld the capital gains tax in 2023. Plan as if it takes effect.

How many days can I spend in Washington after leaving? Washington's regime turns on domicile and income allocation rather than a single statutory day threshold, but your day count is the core evidence in any residency dispute — and if you establish residency in a 183-day state, you must satisfy that state's test too. See our state-by-state 183-day guide.

The Bottom Line

Washington spent ninety years as the tax haven of the West Coast. In five years it built a 9.9% capital gains regime, briefly held the nation's highest estate tax rate, and has now enacted a broad millionaires' tax that the courts have refused to derail. The deadline is fixed:

January 1, 2028. The strategies are known: accelerate the transaction, or move first and move cleanly. And the evidence that decides whether your move holds up — where you actually spent your days — is something you can only build in real time.

Start building it now. Download iReside and walk into 2028 with an audit-ready record instead of a memory test.

---

This article is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional regarding your specific situation.