USA: Big changes ahead for Washington State taxpayers

Overview of Washington State Senate Bills 6346 and 6347

During the 2025–26 legislative session, Washington enacted two major tax measures—Senate Bill 6346 and Senate Bill 6347—that materially change the state’s income and estate tax framework and have a significant impact on long‑term financial and tax planning for Washington state residents and those with income earned and assets located in Washington state.

SB 6346: Tax on High‑Income Households

Senate Bill 6346 establishes a 9.9% tax on Washington taxable income exceeding $1 million per household. The tax applies to both single and joint filers and takes effect for tax years beginning January 1, 2028, with first returns due in 2029.

The law defines the tax as an excise tax on the receipt of income and uses federal income concepts as the starting point for calculation of taxable income. Only income above a $1 million threshold is subject to the tax.

How the SB 6346 Tax Is Calculated

• Starting Point
  • Federal Adjusted Gross Income (AGI) as reported on the taxpayer’s federal return
  • Deduct long-term capital gains and add back long-term capital losses.
  • Add back to income state and local obligations, taxes, and certain carryovers such as net operating losses generated prior to 2028.
• Standard Deduction
  • A $1,000,000 standard deduction per household
  • Applies equally to single filers and married or domestic partners filing jointly
  • Indexed for inflation
• Tax Rate
  • 9.9% applied only to income above $1 million
  • Example: $1.2 million of Washington taxable income results in tax of $200,000

Exclusions and Subtractions

SB 6346 expressly excludes or subtracts several categories of income:

• Real estate sales, including the sale of primary residences and other qualifying property
• Income from the sale of Qualified family‑owned business (per existing guidelines for the Washington state capital gain tax)
• Certain retirement income, including specified pensions and retirement system benefits
• Income already subject to Washington’s capital gains tax, to prevent double taxation

Credits Available

To mitigate overlapping taxes, SB 6346 provides credits for:

• Washington capital gains tax paid
• Business & Occupation (B&O) tax attributable to the same income
• Taxes paid to other states on income also taxed by Washington
• Certain pass‑through entity level taxes (PTET election)

The tax applies to Washington residents on worldwide income and to non‑residents on income sourced to Washington.

SB 6347: Estate Tax Rate Adjustments

Senate Bill 6347 addresses Washington’s estate tax by rolling back rate increases enacted in 2025. As passed, the bill:

• Reduces the top marginal estate tax rate from 35% to 20%
• Restores lower marginal rates across most estate value brackets
• Retains the higher estate tax exemption of approximately $3 million, indexed for inflation
• The revised rates apply to estates of decedents dying on or after April 1, 2026, while preserving the inflation‑adjusted exemption adopted in prior legislation.

Practical Implications

Together, SB 6346 and SB 6347 create a new tax structure for Washington state in which:

• High‑income households face a new income‑based tax beginning in 2028
• Estate tax exposure is reduced through lower marginal rates while maintaining a higher exemption
• Taxpayers must coordinate income recognition, credits, and exclusions carefully to avoid double taxation

Taxpayers affected by either law will need to incorporate these changes into income timing, estate planning, and multi‑state tax compliance strategies well before 2028.