Although Washington’s newly enacted income tax targeting high earners does not formally take effect until 2028, the policy has already triggered a firestorm of political activity, legal challenges, and legislative maneuvers across the state. A crucial date has now been set for oral arguments in an ongoing constitutional challenge that questions the fundamental legality of the tax. Meanwhile, the debate has intensified as a state lawmaker recently proposed drastically lowering the income threshold to capture residents earning as little as $250,000 annually. Adding to the high-stakes political drama, voters will decide on a major ballot measure this November—Initiative 645—which seeks to completely reverse the legislature’s decision and block the controversial tax before it ever takes effect.
The path that brought Washington to this legislative crossroads involves a complex series of procedural steps taken by state lawmakers to bypass traditional voter oversight. In 2024, the legislature overwhelmingly approved a filed ballot measure stating explicitly that neither the state nor any county, city, or local jurisdiction in Washington could tax any individual person on any form of personal income. Rather than letting the question go directly to a public vote, lawmakers advanced the measure themselves.
This maneuver was largely procedural. Under state rules, amending language adopted directly by a ballot measure requires a two-thirds legislative supermajority for the first two years. Had voters approved the prohibition in November 2024, lawmakers would have been constitutionally barred from considering an income tax until the 2027 legislative session. By taking the measure off the general ballot and passing it themselves in early 2024, lawmakers effectively started the clock much sooner. This allowed them to return during the 2026 session and do precisely what the original measure sought to prohibit: adopt a personal income tax.
In another strategic procedural move, Washington lawmakers attached an emergency clause to the high-earner income tax legislation. They asserted that the new tax—which will not be collected until its initial filing date in 2029—was strictly necessary for the support of state government and its existing public institutions. Attaching this clause shielded the measure from a standard provision in Washington law that routinely allows voters to review tax changes through a popular referendum. With that traditional avenue blocked, opponents of the income tax mobilized and successfully filed their own independent initiative to repeal the policy, securing its placement on the upcoming November ballot.
These developments unfold against the backdrop of Washington’s historical tax landscape. 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, which sits at the center of the pending litigation. Under the new framework, some high-income earners residing in Seattle could face a combined state and local top rate that ranks among the highest in the entire country. When combining the new 9.9 percent state-level tax with local impositions—including the 5 percent Seattle Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares payroll tax—affected taxpayers in Seattle could face a top marginal rate of 18.037 percent, split between employers and employees.
Imposed primarily on individuals or married couples with adjusted annual incomes exceeding $1 million, the tax will fall heavily upon small business owners and highly compensated technology sector workers. Because very few salaried workers earn more than $1 million per year, incomes at this level typically flow through three primary channels: capital gains and dividend income, pass-through business earnings, and restricted stock unit (RSU) vesting events.
RSU vesting is expected to create significant tax complications. When a privately held startup finally goes public, employees may see years of accumulated, granted stock shares vest all at once. An employee who spent five years working at a growing startup could experience a sudden spike in income surpassing $1 million during the year of the initial public offering, even though their average annual compensation over that five-year span was far below the statutory threshold.
Small business owners will also bear a disproportionate share of the impact. According to data from the U.S. Small Business Administration, Washington is home to 672,472 small businesses—the vast majority of which operate as pass-through entities—employing roughly 1.4 million people, or 48.4 percent of the state’s entire workforce. Imposing a 9.9 percent income tax on small business owners subjects them to one of the nation’s highest income tax rates in a state that already levies a heavy gross receipts tax, known formally as the Business & Occupation Tax, and applies sales taxes to an unusually broad share of routine business inputs.
Washington’s broader tax code has long been heavily skewed toward business taxation, partly because the state does not utilize a broad-based individual income tax. However, unlike other states that also forgo an income tax, Washington does not maintain a low-tax, limited-government philosophy. This structural reality forces local businesses to shoulder a disproportionate share of the overall public tax burden. Critics argue that by layering a high-rate income tax exclusively on high earners, Washington creates the worst of all possible worlds for its small business community, potentially restricting entrepreneurial growth and dampening job creation.
Beyond tech workers with vesting stock options, the tax structure threatens to sweep in residents experiencing one-time financial events. Individuals who sell a family-owned business after decades of hard work, or those generating substantial capital gains from the sale of a residential home, could find themselves unexpectedly subjected to the high-earner tax during a single calendar year.
Furthermore, tax policy analysts point out several unusual design features within the new statute. The legislation caps charitable deductions at $50,000. Additionally, joint filers face taxation on income above $1 million under the exact same parameters as single filers, meaning two unmarried individuals earning $600,000 each would face zero tax liability, whereas a married couple with the exact same combined income would be taxed.
The tax framework also lacks any administrative safe harbor for individuals who unexpectedly cross the threshold or miscalculate their liability. Under federal tax law and the rules 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 withholding or quarterly estimated payments. Washington’s new law contains no such provision, leaving taxpayers vulnerable to penalties if they misjudge their annual earnings or unexpectedly become subject to the filing requirements.
Repealing the tax via this November’s ballot measure remains an uphill political battle. The challenge is compounded by disputed ballot language warning voters that repealing the tax would force deep cuts to public education funding, despite the fact that the tax is not yet active and no existing state budget incorporates its projected revenues. Under a 2022 state law, the attorney general is authorized to supply fiscal impact statements for ballot measures. Critics have sharply questioned the inclusion of language predicting funding cuts for a tax that has not yet taken effect. Nevertheless, as lawmakers openly discuss expanding the tax to capture lower income brackets even before collections begin, many voters may ultimately choose to follow historical precedents in Washington and reject a state income tax once again.
