If you’re moving to Seattle or maybe just landed a high-paying gig in Bellevue, you’ve probably heard the rumors. Washington is one of the "lucky" ones. No state income tax. It sounds like a dream, right? A free pass from the government taking a bite out of your paycheck every two weeks.
Honestly, the answer to does the state of Washington have state income tax is a bit of a "yes, but actually no" situation as of 2026.
For the vast majority of people—the teachers, the baristas, the software engineers making a normal salary—the answer is still a firm no. Your wages are safe. But if you’re pulling in millions or selling off a massive chunk of stock, things just got a whole lot more complicated. Olympia has been busy lately.
The Basic Truth About Washington Income Tax
Let’s be direct. Washington does not have a traditional personal income tax. There is no form you fill out on April 15th that mirrors your federal 1040 to report your salary or hourly wages. This is actually written into the state's DNA.
The Washington State Constitution has long been interpreted to mean that "property" includes income. And since the constitution says property taxes must be uniform, you can't have a graduated income tax where rich people pay a higher percentage. Voters have also been incredibly clear about this. They’ve rejected income tax proposals at the ballot box more than 10 times over the last century.
Just last year, in late 2025, the debate heated up again. Governor Bob Ferguson and Democratic leadership in the legislature started pushing for what they call a "Millionaire’s Tax."
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The 2026 Millionaire’s Tax Reality
This is where the "no income tax" rule starts to feel a bit shaky. As we head into the 2026 legislative session, there is a massive push to implement a 9.9% tax on individuals earning more than $1 million per year.
- Who is targeted? Only those with annual net income above the $1 million threshold.
- The Loophole: To get around the "income is property" rule, proponents are trying to frame this as an excise tax or looking for a way to have the State Supreme Court reclassify what "income" actually means.
- Timeline: Even if they pass it this year, you won't see it on your 2026 returns. Projections suggest the first collections wouldn't happen until 2029 because of the inevitable legal fireworks that are about to go off.
If There’s No Income Tax, How Does Washington Get Paid?
The money has to come from somewhere. Washington has some of the highest sales taxes in the country to make up for the lack of a paycheck tax. It’s a trade-off. You keep more of your salary, but you pay more at the cash register.
But it's not just sales tax. There are two "shadow" income taxes you really need to know about because they behave exactly like an income tax, even if the state calls them something else.
1. The Capital Gains "Excise" Tax
This is the big one. If you sell stocks, bonds, or a business interest and make a profit, the state wants a piece.
Starting in 2025 and continuing through 2026, the rates have actually gone up. It used to be a flat 7%. Now, it's a tiered system. If your long-term capital gains are over a certain threshold (adjusted for inflation to around $278,000 for 2025/2026), you’re paying 7% on the first million. Anything over $1 million in profit? That’s taxed at 9.9%.
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Critics call it an income tax. The IRS calls it an income tax. But the Washington State Supreme Court ruled it's an "excise tax" on the privilege of selling assets.
2. Business and Occupation (B&O) Tax
If you’re a freelancer or own a small business, you don't pay "corporate income tax," but you do pay B&O tax. This is a tax on gross receipts.
Think about that for a second. It doesn't matter if your business made a profit or lost money. If you brought in $100,000 in revenue, the state takes a percentage of that $100,000 before you even pay for your office rent or supplies. For 2026, new surcharges have kicked in for "high-grossing" businesses making over $250 million, but even small service businesses are seeing their rates creep up toward 2.1% depending on their classification.
Why Does This Matter Right Now?
The reason everyone is asking does the state of Washington have state income tax in 2026 is that the state is facing a multibillion-dollar budget shortfall.
The old way of doing things—relying almost exclusively on sales tax—isn't keeping up with the spending. You're going to see more of these "carve-out" taxes. They won't call them income taxes. They'll call them "surcharges," "excise taxes," or "wealth levies."
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What’s Specifically Changing in 2026?
- The "Advanced Computing" Surcharge: If you're in the tech sector, your company is likely facing a massive jump in B&O taxes. The surcharge for advanced computing just rocketed from 1.22% to 7.5% for the biggest players.
- Expansion of Sales Tax: Starting late 2025 and into 2026, the state expanded "retail sales tax" to things that used to be exempt, like custom software development, website design, and even some types of temporary staffing.
- Luxury Taxes: Buying a Tesla over $100,000 or a private plane? There’s a new 8% to 10% "luxury surcharge" waiting for you.
Common Misconceptions (The "Oregon" Fallacy)
People often think Washington is like Oregon. It's not. Oregon has a high income tax but zero sales tax.
In Washington, if the Millionaire's Tax or other income-style levies pass, there is no plan to get rid of the sales tax. You would simply be paying both. This is a huge point of contention in Olympia. The state's tax system is often called "regressive" because lower-income people spend a higher percentage of their earnings on sales-taxable goods than wealthy people do.
Proponents of the new taxes say they are "balancing" the system. Opponents say it's just a double-dip into the pockets of residents.
Actionable Steps for 2026
If you live in Washington or are planning to move there, you can't just assume your tax bill is zero. Here is what you should actually do:
- Check Your Asset Sales: If you're planning on selling a house, relax—real estate is generally exempt from the capital gains tax. But if you're selling $500k in Nvidia stock to buy that house, you need to set aside 7% for the state of Washington.
- Audit Your B&O Classification: If you're a business owner, the rules for 2026 have changed. Some service categories that were taxed at a lower rate have been bumped up. Make sure your bookkeeper isn't using 2024 rates.
- Watch the Ballot: There will likely be an initiative in November 2026 to repeal the capital gains tax or permanently ban any form of income tax. Your vote actually determines the answer to this question for the next decade.
- Relocation Math: If you are moving for the "0% tax," calculate the 9% to 10% sales tax on your big purchases (cars, furniture, appliances). Sometimes the "savings" disappear faster than you’d think.
Washington is currently in a tug-of-war with its own constitution. For now, your paycheck is yours to keep, but the definition of "income" is being stretched thinner every year.
Keep a close eye on your capital gains and any business revenue. If you're crossing that $250,000 threshold in profit from assets, the "no income tax" rule effectively doesn't apply to you anymore. You’re already paying it; they just gave it a different name to keep the lawyers happy.
Next Step: Review your 2025 year-end investment statements to see if your realized gains exceed the $278,000 threshold, as you'll need to file the Washington Capital Gains return by April 15, 2026.