While Some States Are Moving Towards No Income Tax, Washington Moves Away With New “Millionaire’s Tax”

Just as the US was getting close to having its 10th state with no income tax, it lost one… sorta. At the end of March, Washington State passed a new “Millionaire’s Tax” affecting the ~20K residents who earn an adjusted gross income of $1M or more per year.

• Washington State’s constitution expressly prohibits an income tax, but the legislature has characterized the tax like an “excise tax” on the privilege of being a millionaire.
• Only income above $1M is taxed at the 9.9% rate — it will supposedly raise $3B per year for education and expanded tax credits for lower-earning families.

Up for debate: The new tax is expected to go into effect in Jan. 2028, but it’s far from settled  — challenges have already been filed on constitutional grounds. Proponents worry that it could clear the way for income taxes on lower earners or a wealth tax. It’s the second tax targeting the state’s wealthiest residents, following the passing of a Capital Gains Tax that faced similar legal hurdles — it ultimately was allowed by the state’s Supreme Court, allowing a 7% tax on long-term gains above $250K per year.