Washington’s New Individual Income Tax: What High‑Income Taxpayers Need to Know Now

Washington has historically stood out as a state without a broad-based individual income tax. That will change at the beginning of 2028. In March of this year, Washington enacted Engrossed Substitute Senate Bill 6346, introducing a new individual income tax aimed at higher-income individuals. While the tax does not take effect immediately, it is worth considering now. The rules are complex, and early planning will matter for both residents and nonresidents who have connections to Washington.

At a high level, the tax applies to taxable income above $1 million and is built on federal adjusted gross income with state-specific modifications layered in. Below is an overview of the new tax, outlining the key areas taxpayers and business owners should pay attention to as they look ahead.

When the Tax Starts and Who It Applies To 

The new Washington individual income tax applies to tax years beginning on or after January 1, 2028. The first returns will be filed in 2029. 

Key points to know:

• Effective date: January 1, 2028

• Tax rate: Flat 9.9%

• Who is subject:

  • Individuals, not entities

  • Washington residents, who are taxed on all income regardless of source

  • Nonresidents, who are taxed on income sourced to Washington

  • Business owners with multistate operations or Washington activity

This tax is imposed on “Washington taxable income,” which is calculated starting with federal adjusted gross income and then modified under Washington‑specific rules.

The $1 Million Standard Deduction 

The new tax includes a $1 million standard deduction, but how that deduction applies depends on residency status.

Residents:

• Receive the full $1 million standard deduction
• The deduction applies against all income, regardless of source
• For married couples or state‑registered domestic partners, the $1 million deduction is shared, not applied per person

Nonresidents:

• The $1 million standard deduction is prorated based on their Washington-sourced income relative to total income
• Only the Washington‑sourced portion of the deduction is allowed

This detail matters more than it appears at first glance. The proration is one of the most commonly misunderstood elements of the law and means that nonresidents may owe tax, even when their Washington‑source income is well below $1 million.

How the Tax Is Calculated: Residents vs. Nonresidents 

While the tax rate is the same, the calculation differs significantly based on residency.

For Washington residents:

• All income is included in the tax base, regardless of where it is earned
• The full $1 million standard deduction applies
• Income above the deduction is taxed at 9.9%
• Residents may claim a credit for income taxes paid to other states on the same income, helping reduce double taxation

For nonresidents:

• Only Washington‑sourced income is included
• Income is sourced using Washington’s allocation and apportionment rules
• The $1 million standard deduction is prorated based on the ratio of Washington‑sourced income to total federal adjusted gross income
• Only income above the prorated deduction is subject to the 9.9% tax

For business owners:

Business owners need to pay particular attention here. Washington generally uses a sales-based apportionment approach, which means even limited activity in the state can create taxable income exposure. In practical terms:

• Business income is apportioned based on Washington sales ÷ total sales everywhere
• That percentage is applied to the total business income to determine the Washington‑sourced portion
• The resulting Washington income then flows into the individual’s tax calculation

This approach mirrors how many states tax nonresident business income but can produce unexpected results for owners of pass‑through entities with even limited Washington activity.

Pass‑Through Entity (PTE) Tax Election

The new law allows an elective pass‑through entity tax, giving partnerships and S corporations the option to pay the tax at the entity level instead of at the individual owner level. For some taxpayers, this election may improve federal deductibility and simplify compliance, but it requires careful analysis before making the election.

Important details include:

• Election deadline: No later than June 15 of the taxable year

• Election timing: Annual and irrevocable for that year

• Residents: The election applies to all distributive income

• Nonresidents: The election applies only to Washington‑sourced distributive income

• Owner treatment: Owners receive a credit for their share of the entity‑level tax paid 
  
  

Planning Opportunities Before 2028 

Although the tax does not take effect until 2028, the law's structure makes early planning essential. For some individuals, especially those considering a business sale, retirement, or relocation, decisions made over the next two to three years could materially impact future tax outcomes.

Relocating ahead of 2028 is one example. For current Washington residents planning a significant liquidity event, changing residency before the tax takes effect could yield meaningful savings, depending on the facts and timing.

Planning ahead now is especially important for:

• Washington residents with high income
• Business owners with multistate operations
• Nonresidents with Washington sales or service activity
• Owners considering a future business sale or liquidity event

Understanding how income will be sourced, how the standard deduction will apply, and whether a pass‑through entity election makes sense can materially impact future tax outcomes.

At Redpath and Company, we focus on proactive planning. We help clients simplify complexity, anticipate change, and make informed decisions with clarity and confidence. As Washington’s tax landscape evolves, thoughtful modeling and early conversations can help avoid surprises and position taxpayers well before 2028 arrives.