Washington State has no personal income tax — $0 regardless of wages or salary. However, since 2022 Washington has imposed a 7% capital gains tax on gains above $262,000 (as of 2026, adjusted for inflation). Business owners pay the B&O (Business and Occupation) gross receipts tax — 1.5% on services revenue, 0.484% on manufacturing. At $100,000 in wages, a WA resident pays $0 in state income tax; at $300,000 in long-term capital gains, they'd owe ~$2,660 in capital gains tax on gains above $262,000.
At a glance
Key Facts
Personal Income Tax
0% — Washington State has no personal income tax on wages, salaries, or ordinary income
Capital Gains Tax
7% on long-term capital gains above $262,000 (2026 threshold, indexed for inflation); enacted 2022, upheld by WA Supreme Court 2023
B&O Tax (Business Income)
Gross receipts tax: 1.5% (services), 0.484% (manufacturing/retail); no net income deduction — revenue-based, not profit-based
Sales Tax
6.5% state + local (typically 2%–3.6%); Seattle combined rate: 10.25% — among the highest in the country
Property Tax
Average effective rate ~0.84%; King County (Seattle) effective rate ~0.89%
Estate Tax
Washington has a state estate tax starting at $2.193M (2026, indexed) — rates 10%–20%; one of few states with estate tax
Introduction
Washington State is one of nine states with no personal income tax — and it has maintained that status despite significant political pressure. However, the state's 2021 capital gains tax legislation (ESSB 5096), which survived a constitutional challenge in the Washington Supreme Court in 2023, created a new exception: capital gains above $262,000 (indexed for inflation) now face a 7% state tax.
This distinction matters enormously. A tech worker earning $500,000 in salary pays $0 in Washington state income tax. But if they exercise stock options generating $400,000 in capital gains, they owe 7% on the amount above $262,000 — roughly $9,660. Understanding the boundary between wage income (not taxed) and capital gains (taxed above the threshold) is central to WA tax planning.
Section 01
Washington Capital Gains Tax: What Triggers It and What Doesn't
The WA capital gains tax (passed 2021, effective for 2022, upheld March 2023 by WA Supreme Court) applies only to long-term capital gains above $262,000. Key details:
What IS subject to WA capital gains tax:
Gains from selling stocks, bonds, and mutual funds (long-term, held 1+ year)
Gains from selling cryptocurrency (long-term)
Gains from selling a business (except for certain small businesses)
What is EXEMPT from WA capital gains tax:
Wages, salary, and ordinary income (not taxed by WA at all)
Real estate gains — residential real estate is explicitly excluded
Retirement account gains (IRA, 401(k) distributions not subject)
Gains on small businesses (qualified family-owned businesses exemption)
First $262,000 of capital gains (the annual exclusion)
Practical calculation: If you sell $500,000 in stock with $350,000 in long-term gains: $350,000 - $262,000 exclusion = $88,000 taxable. 7% × $88,000 = $6,160 WA capital gains tax. Federal capital gains tax (15% or 20% depending on income) applies separately on the full $350,000.
Section 02
B&O Tax: The Business Tax That Catches Many By Surprise
Washington's Business and Occupation (B&O) tax is a gross receipts tax — it's assessed on revenue, not profit. A business with $1M in revenue but $950,000 in expenses (losing money) still owes B&O tax on the $1M in revenue.
Key B&O rates (2026):
Service businesses: 1.5%
Retail sales: 0.471%
Manufacturing/processing: 0.484%
Wholesale: 0.484%
Printing/publishing: 0.484%
B&O Small Business Credit: Businesses with annual gross income under ~$1,080,000 may qualify for a B&O credit that effectively reduces or eliminates B&O liability — consult the Washington Department of Revenue for current thresholds.
For freelancers and consultants earning more than $100,000: you are subject to B&O tax at 1.5% on your gross income as a service provider. At $200,000 in consulting revenue, that's $3,000 in WA B&O tax — a real additional cost that doesn't exist in most states.
Section 03
Seattle's 10.25% Sales Tax: Among the Highest in the US
Seattle's combined sales tax rate of 10.25% (6.5% state + 3.75% city/county combined) is one of the highest in the country. This matters for everyday purchases and has a real impact on the cost of living:
A $50,000 new car: $5,125 in sales tax
A $2,000 laptop: $205 in sales tax
$500/week in consumer spending: $51.25/week or ~$2,665/year in sales tax
In comparison, Oregon (no sales tax) and Montana (no sales tax) represent the extremes. The high sales tax partially offsets Washington's advantage of having no income tax for lower and middle-income earners who spend most of their income — though high earners who save more still benefit significantly from no income tax.
Section 04
Washington Estate Tax: A Planning Priority for High-Net-Worth Residents
Washington State has a standalone estate tax starting at $2.193 million (2026, indexed for inflation). This is significantly below the federal exemption (~$13.6M for 2026), meaning many Washington residents with estates between $2.2M and $13.6M owe WA estate tax but no federal estate tax.
WA estate tax rates range from 10% to 20% on the taxable estate. A $5M estate owes roughly $261,000 in Washington estate tax alone. Planning strategies commonly used by WA residents include Oregon trusts (Oregon has no estate tax), charitable lead trusts, and annual gifting programs.
Washington is one of about 12 states (plus DC) that still maintain standalone estate taxes post-EGTRRA. The $2.2M threshold makes estate planning critical for homeowners in the Seattle metro where $2M+ real estate values are increasingly common.
Navigating state income tax — especially if you are relocating, have multi-state income, or are planning retirement — benefits from professional CPA guidance. TaxHub connects you with licensed tax professionals.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
No. Washington State has no personal income tax on wages, salaries, or ordinary income. You pay $0 in Washington state income tax on employment income regardless of how much you earn. The absence of income tax is partially offset by a high sales tax (up to 10.25% in Seattle) and estate tax.
Q
What is Washington State's capital gains tax?
Washington enacted a 7% capital gains tax on long-term capital gains above $262,000 (2026 threshold, indexed for inflation). It was upheld by the WA Supreme Court in March 2023. Real estate gains are explicitly exempt. Wages and ordinary income remain untaxed. The first $262,000 of long-term capital gains per year is excluded.
Q
What is the B&O tax in Washington?
The B&O (Business and Occupation) tax is a gross receipts tax on Washington businesses. It's assessed on total revenue — not profit. Service businesses pay 1.5%, manufacturing/retail pay around 0.47%–0.484%. Unlike an income tax, even money-losing businesses owe B&O tax. There's a small business credit for those earning under ~$1.08M annually.
Q
What is Washington State's estate tax?
Washington has a state estate tax starting at $2.193 million (2026). Estates above this threshold owe WA estate tax at rates from 10% to 20%. This exemption is much lower than the federal $13.6M exemption, so many WA residents with estates between $2.2M and $13.6M owe state but not federal estate tax.
Q
Is Washington State better than Oregon for taxes?
It depends on income type. WA has no income tax but has high sales tax (up to 10.25% in Seattle) and an estate tax. Oregon has no sales tax but progressive income tax up to 9.9%. For high salary earners who save a lot and buy little, WA wins. For retirees spending most income on goods, Oregon may be similar or better. For those with large capital gains, WA's 7% CGT changes the calculus.
Q
Does WA capital gains tax apply to real estate sales?
No. The WA capital gains tax explicitly exempts real estate. Gains from selling your home or other real property are not subject to WA's 7% capital gains tax (though federal rules still apply, including the $250,000/$500,000 principal residence exclusion).
Disclaimer:This guide is for educational purposes only and does not constitute tax or legal advice. Tax rates and rules change annually. Consult a qualified CPA or tax attorney for advice specific to your situation.