Washington lawmakers are advancing a 9.9% tax on household income above $1 million. The bill has cleared both chambers, and Governor Ferguson has said he plans to sign it. If it becomes law and survives the expected legal challenges, it would take effect January 1, 2028. For high earners in tech who chose Washington partly because it had no income tax, this is a meaningful change worth understanding.
An important distinction: the first $1 million remains untaxed at the state level. Above that, the 9.9% applies to W-2 wages, business income, and pass-through distributions. If you've already paid Washington's 7% capital gains tax on part of that income, you get a credit — so you're not paying twice, but the total state rate on those gains still comes out to 9.9%.
A million dollars in annual income sounds like a high bar, but it's easier to hit than you'd think. Employees who exercise NSOs at mature companies could generate enough ordinary income in a single year to push well past the threshold. The same applies to disqualifying dispositions of ISOs, which convert the spread into ordinary income. Both are worth factoring into exercise and sale timing.
The $1 million threshold is per household, not per individual, which creates a marriage penalty for dual-income couples who each fall below it on their own. And for anyone considering a residency change before 2028, how Washington will treat trailing income — RSU vests, earn-outs, or deferred compensation earned while a resident but paid out after leaving — hasn't been fully defined yet.
Whether the law survives legal challenges is still an open question. Either way, the two-year window before the effective date is the planning window — and it's worth using.
For educational purposes only. Not tax, legal, or investment advice.