Even though the tax is years away from collecting its first dollar, the policy landscape surrounding it is moving at a breakneck pace. A court date has already been officially scheduled for oral arguments in a high-stakes constitutional challenge aiming to strike down the statute. Meanwhile, the debate has expanded into the legislature, where at least one state lawmaker has floated proposals to drastically expand the tax net by lowering the income threshold to as little as $250,000. Adding to the volatility, voters will head to the polls this November to decide on Initiative 645, a ballot measure designed to completely overturn the legislature’s maneuver and block the tax from ever taking effect.
The road to this legislative milestone has been marked by procedural maneuvering that has raised eyebrows among legal scholars and tax policy experts alike. In early 2024, the Washington legislature overwhelmingly approved a filed ballot measure declaring that neither the state nor any county, city, or local jurisdiction may tax individual personal income in any form. However, rather than allowing the measure to go to a public vote where it could be enshrined securely by the electorate, lawmakers took the step themselves.
Under Washington state law, amending language adopted directly by a ballot measure requires a two-thirds legislative supermajority for the first two years. Had the measure successfully gone to voters in November 2024, lawmakers would have been constitutionally barred from considering an income tax until at least the 2027 legislative session. By intercepting the measure and passing it themselves as a statute, lawmakers started the clock much sooner. This procedural pivot allowed them to return during the 2026 session and do precisely what the original ballot measure sought to ban: adopt a targeted income tax on high-earning residents.
In another strategic procedural step designed to insulate the policy from public pushback, Washington lawmakers attached an emergency clause to the legislation. The state argued that the high-earner income tax—which does not go into effect until 2028, with its inaugural tax filing due in 2029—was immediately necessary for the support of the state government and its existing public institutions.
This specific legislative tag shielded the measure from a standard provision in Washington state law that ordinarily grants voters the power to review and challenge tax changes through a referendum. With that traditional avenue of public recourse blocked, opponents of the tax quickly pivoted, gathering signatures to place their own repeal measure directly onto the ballot.
The stakes for taxpayers caught in the crosshairs are exceptionally high. Washington has historically maintained a reputation as a state without a broad-based personal income tax, and its state constitution has long been interpreted by legal experts as largely prohibiting income taxation, which sits at the heart of the pending litigation. Under the new statute, high earners in cities like Seattle could soon face what independent analysts calculate as the highest combined state and local top income tax rate in the entire country.
When combining the state’s new 9.9 percent income tax with existing local levies—including the 5 percent Seattle Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares state payroll tax—top-earning residents could face a cumulative marginal rate of 18.037 percent, split dynamically across employers and employees.
Designed to target individuals or married couples with adjusted gross incomes exceeding $1 million annually, the tax is structured in a way that will disproportionately impact small business owners and highly compensated technology sector workers. Because very few salaried workers earn direct annual wages exceeding $1 million, incomes at this stratospheric level typically flow through three primary channels: capital gains and dividend income, pass-through business earnings, and the vesting of restricted stock units.
The mechanism surrounding restricted stock units, or RSUs, is a particular point of vulnerability for tech employees who make up a massive segment of Washington’s regional economy. Under the structure of the tax, an employee who works at a startup for several years might see all of those accumulated shares vest at once during an initial public offering. That singular liquidity event can easily push their income well past the $1 million threshold in a single tax year, even though their average annual compensation over the multi-year vesting period was far below that mark.
Beyond tech employees, the tax casts a wide net over pass-through businesses, which include sole proprietorships, partnerships, and S corporations. Data compiled by the U.S. Small Business Administration shows that Washington is home to more than 672,000 small businesses. These entities employ roughly 1.4 million people, accounting for nearly half of all workers in the state.
Imposing a 9.9 percent tax on the income of small business owners places a heavy burden on a sector already operating under Washington’s unique and demanding tax architecture. The state relies heavily on a high-rate gross receipts tax known as the Business and Occupation Tax, which levies taxes on total business sales without allowing deductions for standard operating costs like employee compensation or the cost of goods sold. Furthermore, Washington’s sales tax subjects an unusually high share of everyday business inputs to taxation.
Because Washington lacks a broad-based individual income tax, its tax code has historically skewed heavily toward business levies. However, unlike other states that forgo an income tax while maintaining a low-tax, limited-government philosophy, Washington does not follow suit. This dynamic forces businesses to shoulder an outsized share of the state’s fiscal burden. Economists warn that layering a high-rate income tax specifically on successful small business owners creates a difficult fiscal environment that can stifle long-term business growth and cool local job creation.
The vulnerability is not limited to business owners and RSU holders. Residents who sell a family business after decades of hard work, or those who realize significant capital gains from the sale of a primary residence, can easily find themselves swept into the tax bracket during a single isolated year.
Compounding these structural concerns are several unusual design features embedded within the legislation itself. For instance, the tax imposes a strict $50,000 cap on charitable deductions, an unusual limitation that could disincentivize major philanthropic giving across the state. Additionally, joint filers are taxed identically to single filers once they cross the $1 million threshold. Under this arrangement, two single taxpayers earning $600,000 each would incur zero tax liability, while a married couple earning the exact same combined sum would be fully subject to the tax.
Perhaps most critically for everyday taxpayers who might experience a sudden, unexpected financial windfall, the law completely lacks a safe harbor provision. Under federal tax law and the statutes of most other states, underpayment penalties are waived if taxpayers remit at least 90 percent of their current year tax liability or 100 to 110 percent of their prior year liability through quarterly estimated payments or withholding. Washington’s new tax features no such protections, meaning taxpayers who misjudge their liability or do not anticipate crossing the threshold could face immediate and severe financial penalties.
Overturning the new tax via the upcoming ballot initiative presents a steep uphill climb for opponents. The challenge is further complicated by the contentious wording printed directly on the November ballot. Under a state law enacted in 2022, the state attorney general is authorized to supply a fiscal impact statement for ballot measures. Critics of the statement attached to Initiative 645 point out that it explicitly warns voters that repealing the tax would force deep cuts to public education funding—despite the fact that the tax is not yet in effect, no revenue has been collected, and no state budget has been adopted incorporating those hypothetical future funds.
Nevertheless, as state lawmakers continue to discuss aggressive proposals to expand the tax base downward to lower-earning residents even before the ink is dry on the original law, many voters may find themselves motivated to take a familiar path. Historically, Washington voters have repeatedly rejected attempts to establish a personal income tax at the ballot box, and the outcome this November will determine whether the state’s long-standing tax tradition survives.
