Key Takeaways
- Understand what Washington’s proposed millionaires tax could mean for you. Lawmakers have approved legislation introducing a 9.9% tax on income above $1 million, which could significantly change the state’s tax environment for high earners, founders, and investors.
- Reassess your multi-state tax exposure. If you live, work, or earn income across multiple states, policy changes like this may require you to review residency status, income sourcing, and how your business income is allocated across jurisdictions.
- Evaluate whether your current business and tax structure still works for you. Changes in state tax policy can affect how pass-through income, ownership structures, and investment income are taxed, making it important to ensure your strategy remains efficient.
For decades, Washington has stood out as one of the few states without a personal income tax. That longstanding policy has made the state particularly attractive to high-earning individuals, entrepreneurs, and investors.
That may soon change.
Washington lawmakers recently passed legislation introducing a 9.9% tax on income above $1 million, and the bill now heads to Governor Bob Ferguson, who has said he intends to sign it. If enacted, the measure would represent the first income tax in Washington’s history, potentially affecting thousands of high-income residents and business owners.
While the measure is expected to face legal scrutiny, the broader policy direction is clear: states are increasingly exploring new ways to tax high earners.
For business owners and investors operating across multiple states, developments like this highlight an important reality. Your tax exposure is not determined by federal policy alone. State tax strategy plays a critical role in your overall financial planning.
What the Proposed Washington Tax Could Look Like
The legislation outlines several key elements that could reshape Washington’s tax landscape, including:
- A 9.9% tax on income above $1 million. The tax would apply only to income exceeding the $1 million threshold, targeting the highest-earning residents while leaving income below that level unaffected.
- A relatively small group of taxpayers impacted. Early estimates suggest roughly 20,000 households could fall within the scope of the tax, meaning the measure is designed to focus primarily on high-income individuals.
- An expansion of Washington’s recent tax policy direction. The proposal builds on the state’s capital gains tax introduced in recent years, extending Washington’s approach to taxing high earners beyond asset sales into broader categories of income.
What This Could Mean for Multi-State Tax Planning
For high-income individuals and business owners, changes in state tax policy rarely exist in isolation. They can influence where you establish residency, how your income is taxed across jurisdictions, and how you approach long-term financial planning.
If Washington implements a personal income tax, it could reshape how you evaluate your broader multi-state tax strategy. Key considerations may include:
- Residency planning. State tax exposure is often tied to where you establish legal residency. If Washington’s tax structure changes, individuals with ties to multiple states may need to reassess how residency rules apply to their situation.
- Income sourcing and allocation. If you earn income across several jurisdictions, understanding where that income is sourced and taxed becomes increasingly important. As states introduce new tax frameworks, coordinating federal and state tax planning becomes more critical.
- Business structure decisions. The structure of your business (whether through pass-through entities or partnerships) can influence how income flows to owners and how it is taxed across states. Policy changes at the state level may affect how these structures perform from a tax perspective.
Why Proactive State Tax Planning Matters
Careful tax planning allows you to evaluate how policy changes could affect your tax exposure, identify opportunities to structure income more efficiently, and ensure your overall strategy aligns with both federal and state tax rules.
At Fusion CPA, our team works with business owners and investors who operate across multiple jurisdictions. We can help you:
- Understand how federal and state tax systems interact so changes in one jurisdiction do not create unintended tax consequences elsewhere.
- Evaluate your overall multi-state tax exposure across the states where you live, work, or operate a business.
- Structure income and entity arrangements strategically to support efficient multi-state tax outcomes.
- Coordinate federal and state tax planning so your strategy works holistically rather than in isolation.
If you want to understand how evolving state tax policies could affect your tax strategy, contact Fusion CPA to discuss your situation with our team.
Frequently Asked Questions
- Does Washington currently have a personal income tax?
No. Washington has historically been one of the few U.S. states without a personal income tax. The newly approved legislation would introduce a 9.9% tax on income above $1 million, which would represent the state’s first income-based tax if it takes effect.
- Who would be affected by the proposed Washington millionaires tax?
The tax would apply only to household income above $1 million. Current estimates suggest roughly 20,000 high-income households in Washington could fall within the scope of the tax.
- Why does this matter for multi-state tax planning?
State tax policies can influence where you establish residency, how income is allocated across jurisdictions, and how your business income flows to owners. If you operate across multiple states, policy changes like this may affect your overall tax exposure and long-term planning strategy.
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This blog does not provide legal, accounting, tax, or other professional advice. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive