Washington Millionaires Tax: What Nonresidents with Washington-Source Income Need to Know

Key Takeaways

• Washington’s new “millionaires’ tax” may affect more than just Washington residents with income over $1 million.
• Nonresidents with Washington-source income could owe tax even if their Washington income is below $1 million, because the standard deduction is prorated.
• Washington’s capital gains tax and millionaires’ tax should be modeled together, since credits may offset some—but not all—of the new tax liability.
• Taxpayers with Washington-source income should begin planning before the tax takes effect in 2028 and first returns are due in 2029.

Washington state has lost much of its appeal as a tax haven. With the enactment of the state's "millionaires' tax" in March 2026, residents with income over $1 million, and nonresidents with smaller amounts of income from Washington sources, may be subject to an income tax beginning in 2028.

Governor Bob Ferguson signed Engrossed Substitute Senate Bill 6346 into law on March 30, 2026. The law imposes a 9.9% tax on an individual's Washington taxable income for tax years beginning on or after January 1, 2028. First returns and payments are due in 2029, and estimated payments are not required before July 1, 2029.

The calculation starts with federal adjusted gross income, applies a set of Washington-specific modifications, and then subtracts a $1 million standard deduction. Spouses and state-registered domestic partners share one $1 million deduction regardless of how they file. Several credits are available to prevent double taxation, including credits for Washington capital gains tax paid, state B&O or public utility tax paid, income tax paid to another jurisdiction, and pass-through entity tax payments.

Could Washington’s Millionaires Tax Be Repealed or Challenged Before 2028?

The tax faces an upcoming challenge in the form of a ballot measure that would repeal the tax if passed by the voters. Additionally, a lawsuit has been filed challenging the tax on the grounds that it violates Washington’s state constitution. Thus, while the tax is currently law, it is possible that the tax could be stricken from the law before its effective date of January 1, 2028. 

How Washington’s Millionaires Tax Applies to Nonresidents

While a full-year Washington resident is afforded the $1 million deduction in full, the calculation works differently for anyone who is not a Washington resident for the full year.

Nonresidents are taxed only on their Washington-source income, which includes items such as compensation for services performed in the state, business income attributable to the state, income from real property rented in the state, and income from pass-through entities with activities in the state. But nonresidents’ $1 million standard deduction is not applied in full. Instead, it is prorated using a fraction: Washington's base income divided by the total federal adjusted gross income. A nonresident with modest Washington-source income but substantial income from other states receives only a small fraction of the deduction, which can produce a tax bill on income that never approaches $1 million.

Consider a consultant who lives in Oregon and earns $5 million in total federal adjusted gross income for the year, $600,000 of which comes from consulting work performed for Seattle-based clients. The prorated deduction is $1 million multiplied by the ratio of in-state income to total income ($600,000 / $5 million), which results in a $120,000 deduction. Washington taxable income becomes $600,000 minus $120,000, or $480,000. At 9.9%, that produces a Washington tax bill of roughly $47,520, even though the consultant's Washington-source income never came close to $1 million.

How Washington’s Capital Gains Tax Interacts with the Millionaires Tax

Washington’s capital gains tax has been in effect since 2022. In 2025, its flat 7% rate was replaced with a tiered rate structure of 7% on the first $1 million of taxable long-term capital gains, and 9.9% applicable to taxable long-term capital gains greater than $1 million (there is an exemption for the first $270,000 of long-term capital gains, and the exemption is indexed each year for inflation). The capital gains tax only applies to residents and part-year residents (during the period of the year in which a part-year resident was a resident).

Washington's capital gains excise tax and the new Millionaire’s Tax need to be modeled together rather than in isolation. Take a Washington resident who realizes a $5 million long-term capital gain from the sale of stock in 2028, with no other significant income for the year and no exemption for the sale, such as the exemption available for real estate sales.

Washington's capital gains excise tax applies first. After the annual standard deduction (roughly $270,000, indexed annually), the first $1 million of taxable gain is taxed at 7%, and the remainder is taxed at 9.9%. On a $5 million gain, that produces a taxable gain of roughly $4,730,000: $1 million at 7% ($70,000) and approximately $3,730,000 at 9.9% (approximately $369,270), for a total capital gains tax of approximately $439,270. The exact 2028 standard deduction will depend on inflation adjustments between now and then.

Washington's Millionaires Tax base is designed to include the same capital gain. In the above example, for a taxpayer whose only income is the gain, the net effect leaves the Washington base income at the full $5 million. Subtracting the $1 million standard deduction leaves $4 million in Washington taxable income, which produces a millionaire's tax of $396,000 before credits.

The taxpayer may claim a credit for the capital gains tax already paid. Because that credit, approximately $439,270, exceeds the $396,000 millionaires' tax liability before credits, the credit fully offsets the millionaires' tax, and the resident owes $0 under that tax for the year. The credit is nonrefundable and cannot be carried forward, so the approximately $43,270 of credit that exceeds the millionaires' tax liability is simply lost, rather than refunded or applied to a future year.

The combined result: approximately $439,270 in Washington capital gains tax and $0 in millionaires' tax, for a total state tax burden of approximately $439,270 on the $5 million gain. This pattern holds broadly for residents whose income consists mainly of capital gains already subject to the excise tax: the credit tends to absorb most or all of the millionaires' tax on that portion of income. The millionaires' tax becomes additive, rather than offset, once a resident has other significant income, such as wages, business income, or interest and dividends, that was never subject to the capital gains tax in the first place.

How to Prepare for Washington’s Millionaires Tax Before 2028

Nonresidents who have not historically thought of themselves as Washington taxpayers should consider how their Washington source income might be taxed by Washington when it was previously not subject to tax. Anyone with Washington-source income, including pass-through entities, may benefit from understanding this tax now rather than waiting until 2029 when tax returns are due.

If you have Washington-source income, and your overall income from all sources is greater than $1 million, you should start considering these impacts now. If you have questions or need assistance, please reach out to one of EisnerAmper’s State & Local Tax professionals.