Questions on Washington’s Millionaires Tax

Today is Tax Day—and with Washington’s new income tax making headlines, there are a lot of questions. Here are straightforward answers to some of the most common ones we’re hearing.

Also, over the next several months, many lawmakers will be holding town halls and community events, giving constituents a chance to ask them directly about this policy. This Q&A can be an excellent resource to draw from for basic questions, or if a lawmaker is potentially misrepresenting what the recently passed income/”millionaires” tax bill actually does or does not do.

You can also look up and email your lawmakers here.

1. Can you explain who is subject to the new income tax and when it first takes effect, so people understand clearly whether it applies to them?
   The tax applies to individuals with income above $1 million, beginning on the effective date set in the law. While it is currently limited to high earners, there is no legal barrier preventing future lawmakers from lowering the threshold or expanding who is subject to it. The income tax would also impact most small businesses owners because they operate as S corporations, LLCs, partnerships, and sole proprietorships – meaning business profits are reported on the owner’s personal tax return.
2. For residents who won’t owe the tax, will there be any new filing or reporting requirements they should be aware of?
   No, residents who do not meet the income threshold are not expected to have new filing or reporting requirements under the law.
3. What safeguards are built into the law to ensure the tax remains limited to the highest earners and doesn’t expand to middle- or lower-income residents over time?
   There are no binding safeguards in the law that prevent future changes. The income threshold and structure can be modified by a simple majority vote of the legislature. During debate on the bill in the State House, a proposal that would keep the threshold at $1 million was voted down by Democrats.
4. How does the tax treat small business owners whose income passes through personal tax returns, and what steps were taken to avoid unintended impacts on local businesses?
   Income from pass-through businesses is counted toward the threshold, meaning many small business owners (S corporations, LLCs, partnerships, and sole proprietorships) will be subject to the tax based on how their income is reported. The law created a workgroup to study potential impacts, but it does not have authority to make binding changes.
5. How does the tax apply to married couples, and what considerations guided the decision to balance fairness across different household types?
   The law provides a single $1 million threshold, which does not scale proportionally for married couples compared to federal tax treatment. As a result, dual-income households reach the threshold more quickly (i.e. if their income is more than $1 million combined) than under a system that adjusts for filing status.
6. What research or modeling informed expectations about how high-income taxpayers might respond, and how confident are lawmakers in the long-term stability of the revenue? Does the experience with the estate tax being lowered this year due to taxpayer departures provide an example?
   Revenue projections are based on economic modeling, but taxpayer behavior—such as relocation or restructuring income—introduces uncertainty. We know some millionaires have left or will leave the state to avoid paying this tax. As a result, long-term revenue stability is fair to question.
7. If revenue varies from year to year, how did lawmakers plan to protect the programs this funding is meant to support?
   The law does not include a dedicated stabilization mechanism. If revenues decline, the state would need to rely on the general budget process, which could involve spending adjustments or lowering the income tax threshold, so it impacts more Washington families and individuals.
8. Where is the revenue directed, and what accountability measures ensure it is used as promised rather than replacing existing funding?
   Just 5% of the revenue is directed to the Fair Start for Kids program, while the rest goes into the state’s general fund. Because lawmakers can spend general fund dollars however they’d like, there is no strict guarantee the revenue will supplement rather than replace existing spending.
9. Why did the legislature choose to enact this policy through legislation rather than a ballot measure or constitutional amendment, and how does that approach support timely or effective implementation?
   Simply put, it could fail at the ballot. Washington voters have rejected income tax proposals the last ten times they’ve been given the choice. During the legislative process, the majority party also rejected amendments that would have allowed a public vote or made one easier to trigger. The bill even includes language intended to block a referendum—an easier path for voters to weigh in—though that provision is now being challenged in court.
10. Many of the ‘high-earners” that will be subject to this tax are family-owned businesses. Why are public companies like Microsoft, Amazon, Starbucks and others not also subject to this tax?
    Because the tax is structured as a personal income tax, not a tax on businesses themselves. Large public companies like Microsoft, Amazon, and Starbucks pay the same as those family businesses, such as the state B&O tax, sales tax, property taxes but their profits are not taxed at the entity level under this policy. In contrast, many family-owned or closely held businesses are structured as pass-through entities, meaning their income is reported on the owner’s personal tax return, making it subject to this tax if it exceeds the threshold.