Update on the Washington State ‘Millionaires’ Tax’ and Estate Tax Rollback

Key Takeaways

• 9.9% tax on income above $1M starts 2028
• Projected revenue $3‑4 billion annually for public services
• Exemptions include family‑owned businesses and charitable contributions
• Estate tax rate drops from 35% to 20% after July 2026
• 35% rate applies to deaths before June 30 2026

Pulse Analysis

Washington’s adoption of a 9.9% surtax on incomes exceeding $1 million marks a historic departure from its reliance on sales and B&O taxes. By targeting the state’s wealthiest households, lawmakers anticipate a steady $3‑4 billion annual infusion earmarked for education, childcare and low‑income tax credits. The revenue projection aligns with similar high‑income taxes in states like California and New York, positioning Washington to diversify its fiscal base and reduce dependence on consumption‑driven funding.

Critics warn that the millionaires’ tax could erode Washington’s competitive edge, prompting affluent residents and businesses to relocate. The legislation’s emergency clause sidesteps a public referendum, but constitutional challenges loom given the state’s long‑standing prohibition on income taxes. To mitigate backlash, the bill carves out exemptions for qualified family‑owned small businesses, real property and charitable donations up to $100,000, while offering credits for taxes paid to other jurisdictions. These nuances aim to balance revenue goals with concerns over economic displacement.

Simultaneously, the rollback of the estate‑tax rate from 35% to 20% after July 2026 softens the fiscal impact on high‑net‑worth estates, though a steep 35% rate persists for deaths before June 30 2026. This reduction aligns Washington with a broader national trend of moderating estate taxes to retain wealth within the state. Financial planners will need to adjust strategies, considering the narrowed window for the higher rate and the revised $3 million exemption threshold. Together, the income and estate tax reforms signal a strategic shift toward progressive taxation while attempting to preserve the state’s business‑friendly reputation.