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Washington State has long been known for having no state income tax, making it one of the more tax-friendly states for workers and retirees. But in 2023, Washington enacted a new capital gains excise tax — one of the most significant changes to the state's tax structure in decades. Here's what Washington residents need to know.
No State Income Tax
Washington does not tax wages, salaries, self-employment income, interest, dividends, or ordinary income of any kind. This has historically made Washington particularly attractive for high earners, including many technology workers in the Seattle area.
The New Capital Gains Tax
Starting with tax year 2022 (collected in 2023), Washington imposes a 7% tax on long-term capital gains above $250,000. Short-term capital gains are not taxed. The first $250,000 of long-term capital gains each year is excluded. The tax applies to gains from stocks, bonds, and other investment assets sold — but not from the sale of real estate or business assets used in a business.
Who's Affected
The vast majority of Washington residents won't owe this tax, as it requires more than $250,000 in long-term capital gains in a single year. High-income earners, those selling concentrated stock positions, and people receiving large payouts from selling a business are most likely to be affected.
Sales Tax
Washington's state sales tax rate is 6.5%, with local additions bringing combined rates in most cities to 9-10%. Washington has one of the higher combined sales tax rates in the country. Food for home consumption and prescription drugs are exempt.
Business and Occupation Tax
Washington imposes a Business and Occupation (B&O) tax on gross receipts from business activities. Unlike most business taxes, it applies to revenue before expenses, which can make it significant for businesses with thin margins. Rates vary by business classification.
Property Tax
Property taxes in Washington are administered locally and vary by county. Washington has several property tax exemption programs for seniors and disabled individuals with limited income, which can significantly reduce property tax obligations for qualifying residents.