Washington’s newly enacted income tax targeting high earners may not officially take effect until 2028, but the policy has already ignited a fierce political, legal, and economic firestorm across the state. A courtroom date has officially been set for oral arguments in a high-stakes constitutional challenge contesting the validity of the law. Meanwhile, the policy landscape continues to shift rapidly as one state lawmaker has floated proposals to aggressively lower the tax threshold to as little as $250,000. Compounding the turbulence, voters will head to the polls this November to decide on Initiative 645, a ballot measure designed to overturn the legislature’s decision and block the controversial tax from ever going into effect.
The path that brought Washington to this legislative crossroads has been defined by procedural maneuvering and intense partisan friction. In 2024, the state legislature overwhelmingly approved a filed ballot measure stating 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 allowing the measure to proceed directly to a public vote, lawmakers advanced it themselves.
This move was largely procedural. Under state guidelines, amending language adopted directly by a ballot measure requires a two-thirds legislative supermajority for the first two years. Had the electorate approved the measure in November 2024, lawmakers would have been constitutionally barred from considering an income tax until the 2027 legislative session. By intercepting the process and passing it themselves in early 2024, proponents effectively started the clock sooner. This tactical maneuver enabled lawmakers to return during the 2026 session—ahead of the 2027 restriction—and pursue the very policy the original measure sought to prohibit: the adoption of an income tax.
In another strategic procedural step, Washington lawmakers attached an emergency clause to the high-earner income tax legislation. The clause asserted that the tax—which is scheduled to lie dormant until 2028, with its first tax filing date arriving in 2029—was immediately necessary for the support of the state government and its existing public institutions. Attaching this clause effectively shielded the measure from a standard provision in Washington law that allows voters to challenge and review tax changes through a referendum. With that traditional avenue of public pushback blocked, opponents of the income tax mobilized by filing their own independent initiative to repeal the statute, successfully securing its placement on the upcoming November ballot as Initiative 645.
The introduction of an income tax represents a historic pivot for Washington, which has historically lacked a personal income tax and whose state constitution has long been interpreted by legal scholars as largely prohibiting such levies, serving as the basis for the pending litigation. Under the new framework, some high earners in Seattle could find themselves facing the highest combined state and local top marginal tax rate in the entire country. When combining the new 9.9 percent state tax with local levies—including the 5 percent Seattle Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares tax—some high-income taxpayers could see a cumulative burden of 18.037 percent, split across employers and employees.
The tax itself is structured to apply to individuals or married couples with adjusted annual incomes exceeding $1 million. In practice, this threshold means the policy will fall heavily on small business owners and highly compensated tech sector workers. Very few workers earn direct salaries surpassing $1 million annually. Instead, income at that elevated tier typically flows through three distinct channels: capital gains and dividend income, pass-through business income, and the vesting of restricted stock units (RSUs), where years of accumulated corporate equity can vest all at once, frequently triggered by an initial public offering.
For instance, an employee working at a startup for five years might see all five years of accumulated stock shares vest simultaneously when the company goes public. That single event can push their annual income well above the $1 million threshold, even though their average earnings over those five years were significantly lower. Similar unexpected tax liabilities could catch individuals off guard if they sell a small business they spent decades building or generate substantial capital gains from the sale of a primary residence.
The tax also casts a wide net over pass-through businesses, which include sole proprietorships, partnerships, and S corporations. 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. These enterprises employ 1.4 million people, accounting for roughly 48.4 percent of the state’s entire workforce. Imposing a 9.9 percent tax on small business owners introduces one of the nation’s steepest personal income tax rates on their earnings, adding to an already heavy state tax burden characterized by a high-rate gross receipts tax, known as the Business & Occupation Tax, and a sales tax structure that subjects an unusually high share of business inputs to taxation.
Washington’s broader tax code is heavily weighted toward business taxation, partly because the state traditionally avoided a broad-based individual income tax. However, unlike other states that also forgo an individual income tax, Washington does not operate under a low-tax, limited-government ethos. This structural reality forces commercial enterprises and small businesses to shoulder a disproportionate share of the state’s fiscal requirements. By introducing a high-rate income tax targeted exclusively at high earners, critics argue that the state has created the worst of both worlds for small business owners, restricting their capacity for growth and undermining local job creation.
Beyond its economic footprint, the tax incorporates several unusual structural design elements. Its charitable deduction is strictly capped at $50,000. Furthermore, joint filers are subject to the tax on income above $1 million under the exact same parameters as single filers; two single earners making $600,000 each would face zero tax liability under the statute, while those same two taxpayers would owe tax if filing jointly.
Compounding these design quirks, the policy lacks any safe harbor provisions for taxpayers who unexpectedly cross the income threshold due to volatile market conditions or sudden liquidity events. Under federal guidelines and the tax codes of most other states, underpayment penalties are waived if taxpayers remit at least 90 percent of their current year’s tax liability or 100 to 110 percent of their prior year’s liability throughout the tax year via withholding or quarterly estimated payments. Washington’s new law includes no such safe harbor, meaning individuals who fail to anticipate becoming filers or misjudge their liability could face severe financial penalties.
Repealing the newly minted tax via the ballot box remains an uphill battle for opponents, a challenge intensified by contested ballot language. The state’s official descriptive text warns voters that repealing the measure would necessitate cuts to education funding, despite the fact that the tax is not yet active and has not been integrated into any enacted state budget. Under a 2002 law, the attorney general is authorized to supply fiscal impact statements for ballot measures. However, critics of the statement attached to Initiative 645 point out that it projects funding decreases from a revenue source that does not yet exist.
Nevertheless, as lawmakers continue to debate proposals to expand the tax to broader segments of the population even before it officially takes effect, many voters may lean toward a familiar pattern. Historically, Washington voters have repeatedly rejected proposed state income taxes at the ballot box, and the outcome of this November’s election will determine whether that long-standing precedent holds.
