Income Taxes in Washington
Washington genuinely has no state individual income tax on wages -- but it is the only state built in this project so far where that fact alone is genuinely incomplete: a real, current, legally upheld capital gains excise tax reaches high earners specifically, and this record treats that mechanic as the centerpiece of Washington's income-tax story.
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Learn moreNo individual income tax on wages -- a settled, confirmed fact
The Washington Department of Revenue confirms directly that Washington levies no individual income tax. This applies to wages, salaries, and ordinary earned income the same as in Texas, Tennessee, Florida, and Nevada -- Washington's other no-income-tax dataset peers.
The capital gains excise tax: a real, current, and legally settled exception for high earners
Enacted in 2021 (Substitute Senate Bill 5096) and effective for gains realized starting tax year 2022, Washington's capital gains excise tax was upheld as constitutional by the Washington Supreme Court in Quinn v. State of Washington (March 24, 2023, in a 7-2 decision), which characterized it as an excise tax on the PRIVILEGE of selling or exchanging a capital asset -- not a tax on income or property -- and therefore consistent with the state constitution. The tax applies a 7% rate to Washington long-term capital gains above an annually inflation-adjusted threshold (roughly $270,000 for 2024, with a separately-cited approximate figure near $278,000 for 2025 -- this record could not independently confirm the Washington Department of Revenue's exact current-year threshold this pass, disclosed as a real gap rather than an invented number).
A 2025-enacted second tier: 9.9% top rate on gains above $1 million
Senate Bill 5813, signed by Governor Ferguson on May 20, 2025 and retroactive to January 1, 2025, layered an additional 2.9% surtax onto gains above $1 million, producing a top combined marginal rate of 9.9% on the portion of gains above that mark. Notably, this $1 million surtax threshold is NOT indexed for inflation -- a real, structural detail meaning more taxpayers will cross into the higher tier over time even without a change in law.
Real, meaningful exemptions -- and who this tax genuinely does not reach
Real estate sales of any kind and retirement account withdrawals are entirely exempt from the capital gains excise tax, along with certain qualified family-owned small businesses, and the tax applies only to LONG-TERM gains -- short-term gains are not taxed by the state at all. This is a genuinely narrow-base tax affecting a small share of Washington taxpayers in any given year -- most movers, most years, will owe nothing under it -- but it is real, current, and a materially different mechanic from every other no-income-tax state in this dataset, worth understanding precisely rather than assuming Washington means zero state tax exposure on investment gains.
Key takeaways
- Washington genuinely has no state individual income tax on wages -- confirmed directly by the Washington Department of Revenue.
- A real, current capital gains excise tax (7% base rate) applies to high earners' LONG-TERM gains above an annual threshold (roughly $270,000-$278,000 depending on tax year) -- upheld as constitutional by the Washington Supreme Court in Quinn v. State of Washington (2023, 7-2).
- A 2025-enacted second tier (SB 5813) adds a 2.9% surtax on gains above a non-inflation-indexed $1 million, for a 9.9% top combined rate.
- Real estate sales and retirement account withdrawals are fully exempt, and only long-term gains are taxed at all -- this is a genuinely narrow-base tax most Washington movers won't owe in a given year, but a materially real exception to a blanket 'no income tax' claim for high earners specifically.
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