Washington state’s newly established income tax on high earners may not officially take effect until 2028, but it has already ignited a storm of legislative maneuvering, court battles, and political friction. A date has officially been set for oral arguments in a high-stakes constitutional challenge aiming to strike down the controversial measure. Meanwhile, the debate has intensified as state lawmakers contemplate expanding its reach, and voters prepare to decide a November ballot initiative that could repeal the law entirely before it ever collects a dime.
The roots of the current legislative showdown stretch back to early 2024, when the Washington legislature took a decisive and unusual procedural route. Lawmakers overwhelmingly approved a measure stipulating that neither the state nor any county, city, or local jurisdiction may tax any individual person on any form of personal income. Rather than allowing the measure to go directly to voters as a standard citizen-led initiative, the legislature passed it themselves.
That maneuver was largely strategic. Under Washington law, amending or overriding language adopted directly by a ballot measure requires a two-thirds legislative supermajority for the first two years. Had voters approved the statutory protection in November 2024, lawmakers would have been barred from considering an income tax until the 2027 legislative session. By taking it off the ballot and enacting it themselves in early 2024, the clock started ticking sooner. This allowed lawmakers to return during the 2026 session and do precisely what the initial measure was designed to prevent: adopt an income tax on high earners.
To further insulate the policy from public pushback, lawmakers appended an emergency clause to the legislation. The clause asserted that the new tax—which does not take effect until 2028, with a tax filing deadline in 2029—was immediately necessary for the support of the state government and its existing public institutions. In Washington, adding an emergency clause effectively shields legislation from the state’s referendum process, blocking voters from petitioning to put the tax change up for a public vote.
With the traditional referendum avenue closed, opponents of the tax mobilized and successfully placed Initiative 645 on the upcoming November ballot. The measure seeks to reverse the legislature’s decision, prohibiting state and local income taxes and preventing the high-earner tax from taking effect.
The legislative and legal conflict unfolds against a backdrop of deep historical skepticism toward income taxation in Washington. The state has traditionally lacked an individual income tax, and its state constitution has long been interpreted by legal scholars and courts as largely prohibiting income taxation, laying the groundwork for the pending litigation.
For high earners, particularly those living in Seattle, the cumulative impact of the new tax structure could be historic. Tax experts note that some Seattle residents could face the highest combined state and local top income tax rate in the entire country, reaching an estimated 18.037 percent when split across employers and employees. This staggering figure combines the state’s new 9.9 percent tax with Seattle’s existing 5 percent Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares state payroll tax.
Designed to target individuals or couples with annual incomes exceeding $1 million, the tax will primarily impact small business owners and highly compensated tech workers. Because very few salaried workers earn more than $1 million annually, incomes at that level typically flow through three primary channels: capital gains and dividend income, pass-through business earnings, and restricted stock unit vesting.
Restricted stock units, or RSUs, represent a particularly volatile pathway to crossing the million-dollar threshold. When a privately held tech startup goes public, employees who have held stock grants for years often see accumulated shares vest all at once. An employee might maintain a modest annual salary for years while working at a startup, only to have a single liquidity event push their income well above $1 million in a single tax year, despite their average earnings over that period remaining significantly lower. Similar unexpected tax liabilities could catch residents off guard when selling a long-held family business or generating significant capital gains from the sale of a home.
Pass-through businesses, including sole proprietorships, partnerships, and S corporations, are also directly swept into the tax’s scope. According to data from the U.S. Small Business Administration, Washington is home to more than 670,000 small businesses. These entities employ roughly 1.4 million people, accounting for nearly half of the state’s total workforce. Imposing a 9.9 percent tax on small business owners places an intense burden on local entrepreneurs, particularly in a state that already levies a high-rate gross receipts tax through the Business and Occupation Tax and subjects an unusually high share of business-to-business inputs to the state sales tax.
Critics argue that Washington’s tax code is heavily skewed toward business taxation because the state historically avoided a broad-based individual income tax. However, unlike other states that forgo an income tax while maintaining a low-tax, limited-government philosophy, Washington’s public spending and tax structures have continued to expand. This leaves businesses to shoulder a disproportionate share of the state’s fiscal responsibilities. Opponents contend that adding a high-rate income tax specifically targeting successful entrepreneurs creates the worst possible environment for small businesses, threatening their capacity for growth and dampening job creation.
Beyond its economic implications, the tax structure features several unusual design elements that have drawn criticism from fiscal analysts. For instance, the tax includes a charitable deduction that is strictly capped at $50,000. Furthermore, joint filers face the same $1 million threshold as single filers, meaning two unmarried earners making $600,000 each would have no tax liability, whereas a married couple with the exact same combined income would be taxed.
The policy also lacks a safe harbor provision for taxpayers who inadvertently exceed the threshold due to unpredictable financial events. Under federal law and in other states with income taxes, taxpayers are typically protected from underpayment penalties as long as they remit a designated percentage of their current or prior year’s tax liability through withholding or quarterly estimated payments. Washington’s new law offers no such safety net, exposing taxpayers who misjudge their income or find themselves unexpectedly classified as high earners to severe penalties.
The political battle over Initiative 645 is proving to be an uphill fight for repeal advocates. The challenge has been further complicated by the official ballot language, which includes a fiscal impact statement warning voters that repealing the tax would necessitate cuts to education funding, even though the tax has not yet taken effect and no budget has been adopted incorporating those hypothetical revenues. Under a 2022 state law, the attorney general is authorized to supply fiscal impact statements to ballot measures, a practice that critics argue introduces political bias into the voting booth.
Nevertheless, as state lawmakers already begin discussing proposals to lower the tax threshold—with one recent Democratic proposal suggesting a reduction down to $250,000—many voters may find themselves motivated to preserve Washington’s historical stance. As the legal arguments proceed in court and the November election approaches, the future of Washington’s tax landscape remains one of the most contentious political battlegrounds in the state.
