Under ESSB 6346, a 9.9% tax will be imposed on Washington income over $1 million beginning Jan. 1, 2028. All the provisions in the bill, including the tax rate and the $1 million standard deduction, are statutory, so they could be changed by the Legislature at any time.

The determination of taxable income begins with the taxpayer’s federal adjusted gross income (AGI), and several additions and subtractions are made to form Washington taxable income. The Washington income tax is explicitly levied on individuals. However, business income from pass-through entities will be subject to the tax.

In addition to imposing an income tax, ESSB 6346 also reduces some taxes (by repealing many changes made in ESSB 5814; ending the temporary B&O tax surcharge early for certain industries; increasing the small business B&O tax credit; and exempting diapers, over-the-counter drugs, and certain grooming and hygiene products from sales tax) and expands eligibility for the working families tax credit. These changes will be effective Jan. 1, 2029, if the income tax is not invalidated by the Supreme Court. Some additional targeted tax reductions will be effective July 1, 2026, and are not contingent on the income tax remaining law.

The bill does not make any appropriations, nor does it require that income tax revenues be used to increase funding for any specific purpose (aside from the expansion of eligibility for the working families tax credit).

The income tax itself is expected to increase state revenues by $2.698 billion in FY 2029 (the second year of the 2027–29 biennium) and by $6.899 billion in 2029–31. The net impact of ESSB 6346 to funds subject to the outlook is -$46.4 million in 2025–27, $2.309 billion in 2027–29, and $5.372 billion in 2029–31. After accounting for tax reductions and increased appropriations for the working families tax credit, the state will effectively retain about 70% of income tax revenues each year that could be appropriated for any purpose.

A lawsuit challenging the constitutionality of the income tax has already been filed, and signatures are being gathered for a potential initiative to repeal the tax. Thus, the state Supreme Court or Washington voters could overturn the tax before it goes into effect.

If it remains law, the income tax will be a major change to Washington’s tax system. But instead of broadly reducing other taxes in a revenue-neutral reform, the Legislature layered the income tax on top of an already uncompetitive tax structure. Even though this generates substantial new revenues for the state, it does not solve the state’s ongoing budget problem. Further, the income tax will make state revenues more volatile, which will make it more difficult to craft sustainable budgets in the future.

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