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Washington has enacted a new 9.9% Millionaires\u2019 Tax<\/strong> that will affect certain high\u2011income households beginning in 2028<\/strong>. While the effective date is still several years away, the law represents a significant change in Washington\u2019s tax landscape and introduces new planning and compliance considerations for individuals and business owners with Washington\u2011source income.<\/p>\n Below is a practical overview of how the Washington Millionaires\u2019 tax works, who it may affect, and why early planning is important.<\/p>\n For decades, Washington has stood apart as a state without a broad\u2011based personal income tax. The Millionaires\u2019 Tax changes that dynamic by imposing a targeted tax on households earning more than $1 million annually.<\/p>\n Beginning in 2028, Washington taxable income will be calculated starting with federal adjusted gross income (AGI), followed by state\u2011specific additions, subtractions, exclusions, and credits. Income above the $1 million threshold will then be taxed at 9.9%.<\/p>\n Although the law focuses on high\u2011income households, its reach is broader than many taxpayers initially expect.<\/p>\n The tax applies to more than full\u2011year Washington residents. It may also affect:<\/p>\n As a result, individuals who do not consider themselves Washington taxpayers may still have exposure.<\/p>\n The law provides a $1 million standard deduction per household<\/strong>. Married couples and registered domestic partners share a single deduction regardless of how they file.<\/p>\n This structure can create a marriage penalty for dual\u2011income households. Two individuals earning $600,000 each may avoid the tax when single but exceed the threshold once income is combined.<\/p>\n The deduction will be indexed for inflation beginning in 2029, but the household limitation remains a defining feature of the law.<\/p>\n Income earned through pass\u2011through entities\u2014such as partnerships, LLCs taxed as partnerships, and S corporations\u2014flows through to individual owners and may be subject to the Millionaires\u2019 Tax.<\/p>\n To address this, the law introduces a Pass\u2011Through Entity Tax (PTET) election<\/strong>, allowing qualifying entities to pay the tax at the entity level on behalf of participating owners. Owners then receive a corresponding credit on their individual returns.<\/p>\n While the PTET election does not eliminate the tax, it may improve overall tax efficiency, particularly when federal deductibility is considered. Because the election is made annually, advance modeling and coordination are critical.<\/p>\n The Millionaires\u2019 Tax layers onto Washington\u2019s existing tax structure, including the capital gains tax, business and occupation (B&O) taxes, and multistate sourcing and apportionment rules.<\/p>\n Credits are available for certain overlapping taxes, including Washington capital gains tax, select B&O taxes, and income taxes paid to other states. These credits are generally nonrefundable and cannot be carried forward, meaning they may reduce\u2014but not fully offset\u2014overall tax exposure.<\/p>\n The tax also operates alongside Washington\u2019s estate tax, reinforcing the importance of long\u2011term, integrated planning.<\/p>\n Beyond the tax itself, the Millionaires\u2019 Tax introduces new compliance obligations. Affected taxpayers should expect additional filings, estimated payments, annual elections, and more detailed income sourcing analyses.<\/p>\n As a result, the cost of the tax includes not only the amount paid to the state but also the increased administrative burden of ongoing compliance.<\/p>\n Although the Washington\u2019s Millionaires\u2019 Tax does not take effect until 2028, early planning can significantly expand available options. Many effective strategies\u2014such as transaction timing, business restructuring, or residency changes\u2014require advance coordination and documentation.<\/p>\n Operational readiness is also key. Accounting systems, estimated payment processes, and multi\u2011year projections may need to be updated well before the first effective year.<\/p>\n Taxpayers who may be impacted should consider reviewing:<\/p>\nKey Takeaways<\/h3>\n
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A Shift in Washington\u2019s Tax Landscape<\/h3>\n
Who the Millionaires\u2019 Tax Applies To<\/h3>\n
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The $1 Million Deduction and Household Filing Rules<\/h3>\n
Implications for Business Owners and Pass\u2011Through Entities<\/h3>\n
How the Tax Interacts with Other Washington Taxes<\/h3>\n
Increased Compliance and Administrative Requirements<\/h3>\n
Why Planning Should Start Now<\/h3>\n
Planning Areas to Review<\/h3>\n