Cliff Planning Before Washington's 2028 Income Tax: How to Use 2026 and 2027

Key Takeaways

• Accelerate taxable income into 2026‑27 to avoid 9.9% Washington tax.
• NSO exercises and Roth conversions offer highest dollar‑per‑effort savings.
• Spread income across both years to stay under $1M AGI each year.
• Model federal brackets, AMT, and Washington capital gains tax together.
• Begin planning now; deadlines like 83(b) elections may expire summer 2026.

Pulse Analysis

Washington will impose a 9.9% income tax on household earnings above $1 million starting Jan 1 2028. For high‑earning founders, investors and executives, the two‑year window before the tax takes effect is the only period when virtually any income can be recognized without state liability. This “cliff planning” mirrors classic rate‑differential strategies: if a marginal tax rate is set to rise, taxpayers accelerate income to capture the lower rate now. The approach is purely timing‑based, not sheltering, and it applies to any income that can be moved forward—stock‑option exercises, Roth conversions, business sales, and deferred compensation.

The biggest savings come from non‑qualified stock‑option (NSO) exercises and Roth conversions, where each dollar shifted to 2026‑27 avoids a 9.9% state charge that could amount to six‑figures on multi‑million gains. However, accelerating too much into a single year can push federal taxable income above $1 million, triggering higher brackets, the 3.8% net investment income tax, or alternative minimum tax on large ISO spreads. Moreover, Washington’s 7% capital‑gains tax still applies, so the net benefit must be modeled across both state taxes and federal liabilities.

Practically, high earners should inventory all moveable income, calculate the $1 million AGI headroom for 2026 and 2027, and allocate income to keep each year below the threshold. Early engagement with CPAs and tax attorneys is critical because options may require 83(b) elections and other deadlines fall in summer 2026. While the tax faces a constitutional challenge, planning for the current law minimizes the risk of an unexpected liability. A disciplined, two‑year sequencing plan can preserve hundreds of thousands of dollars for Washington residents.