Washington Millionaire Tax 2026: What Estates and Trusts Must Know

Washington has long been known as a state without an income tax. That reputation is more complicated now. The state already enforces a 7% capital gains excise tax on qualifying long-term asset sales. And in the 2026 legislative session, lawmakers passed ESSB 6346, creating a 9.9% tax on Washington taxable income exceeding $1 million. The tax is scheduled to take effect January 1, 2028, but the planning window is open now.

For executors administering Washington estates and trustees managing ongoing irrevocable trusts, this law introduces significant strategic complexity.

What Triggers the Tax

The 9.9% rate applies to Washington taxable income exceeding $1 million per individual. The $1 million threshold is a standard deduction — income below that amount is not taxed under this measure. Income above it faces a flat 9.9% levy.

Washington taxable income is calculated by adding back federally excluded income to the federal adjusted gross income base. This addback language is critical: it means certain income streams that escape federal taxation are still counted for Washington purposes.

The Marriage Penalty Is Severe

For a single individual, the standard deduction is $1 million. For married couples or state-registered domestic partners, the combined standard deduction is rigidly capped at $1 million total — whether they file jointly or separately. A married couple where each spouse independently earns $800,000 can only collectively shelter $1 million, leaving $600,000 exposed to the 9.9% rate. Two unmarried business partners earning the same amounts would each shelter their full $1 million.

This is one of the most punishing marriage penalties in any American state income tax code.

The Trust Administration Problem

Non-grantor trusts — the irrevocable trusts that hold assets outside of both spouses' taxable estates — are directly in the crosshairs. Income generated by a non-grantor trust is attributed to the trust itself. If the trust accumulates more than $1 million of income in a year, the excess is subject to the 9.9% Washington tax.

For trustees managing large ongoing trusts established by a deceased Washington resident, the strategic calculation shifts dramatically. The question becomes whether it is more tax-efficient to:

1. Distribute income out to multiple beneficiaries, allowing each beneficiary to shelter their share under their own individual $1 million standard deduction; or
2. Retain income within the trust, accepting the 9.9% levy on accumulated amounts above $1 million.

The answer depends on the number of beneficiaries, their individual income levels, and the trust's investment profile. But the calculation must be made annually, because income retained in a trust above the threshold is taxed at a flat rate far higher than most beneficiaries' marginal rates.

For estates currently being administered, executors should be aware that if the estate remains open and income-generating into 2028, the same analysis applies. An estate that earns substantial income from dividends, rental property, or business operations may face this tax once it takes effect.

Interaction With the Existing Capital Gains Excise Tax

Washington already taxes certain long-term capital gains under its 7% capital gains excise tax, which has been in effect since 2023. The millionaire income tax operates as a separate layer.

The capital gains excise tax applies to gains exceeding an inflation-adjusted standard deduction ($278,000 for 2025) on sales of stocks, bonds, and business interests. Real estate is explicitly exempt from this tax. Retirement account assets (401(k)s, IRAs) are also exempt.

The millionaire income tax is broader, applying to all Washington taxable income rather than only capital gains. The two taxes can stack in years where high earners or trusts generate both ordinary income and capital gains above their respective thresholds.

What to Do Before 2028

The effective date of January 1, 2028 creates a planning window that estate planners and trustees should use now. Strategies worth evaluating:

For married couples: Consider whether trust structures that keep income in separate entities — rather than accumulating at the joint marital level — provide a structural advantage before the tax takes effect.

For ongoing trusts: Review the trust instrument's distribution discretion. Trusts with broad discretionary distribution authority give trustees the flexibility to push income out to beneficiaries in years where retention would trigger the 9.9% rate.

For estates still in administration: If a large estate will generate significant ongoing income, consider whether faster administration and distribution will remove the estate from the potential impact zone before 2028.

For business owners: The tax applies to income from pass-through entities attributed to individual owners. Owners of S-corps, partnerships, and LLCs with substantial pass-through income over $1 million should model their 2028 tax exposure now.

What the Millionaire Tax Does Not Affect

For most Washington estates, the 9.9% millionaire tax is not the primary concern. The more immediate issue is the estate tax itself — with its $3 million threshold, aggressive Table W rates (reaching 35% mid-year 2026), and nine-month payment deadline. Most executors should focus there first.

The millionaire tax becomes relevant for:

• Estates generating substantial ongoing income during a prolonged administration period
• Ongoing irrevocable trusts accumulating significant annual income
• High-net-worth individuals planning around both estate tax and income tax simultaneously

If the estate you're administering falls into one of these categories, coordinating with a Washington CPA before 2028 is essential. The Washington Final Tax & Estate Tax Guide covers the immediate estate tax obligations that every Washington executor must navigate, which is typically where the urgent work happens — the nine-month estate tax deadline arrives long before the millionaire income tax takes effect.

How the Millionaire Tax Compares to Other Washington Wealth Taxes

Washington now operates three distinct layers of wealth and investment taxation, each with separate mechanics:

Layer 1 — Capital Gains Excise Tax (7%, since 2023): Applies to gains from selling stocks, bonds, and business interests exceeding $278,000 annually. Real estate and retirement accounts are exempt. This is the tax that most affects executors liquidating investment portfolios during estate administration.

Layer 2 — Washington Estate and Transfer Tax: Applies to gross estates exceeding $3,000,000 at death. Rates reach 35% (before July 1, 2026) or 20% (after July 1, 2026) under Table W. This is the most immediate and financially significant obligation for executors of larger Washington estates.

Layer 3 — Millionaire Income Tax (9.9%, effective 2028): Applies to Washington taxable income exceeding $1,000,000 per individual, with a combined cap of $1,000,000 for married couples. Impacts ongoing earners, non-grantor trusts accumulating income, and estates open during active income generation years.

Understanding which layer applies to which asset, in which year, requires a coordinated strategy — not three separate calculations made in isolation. A highly appreciated real estate portfolio triggers Layer 2 at death but is exempt from Layer 1 on sale. A stock portfolio may trigger Layer 1 on post-death appreciation but is immunized from capital gains by the step-up in basis if sold promptly. A non-grantor trust earning $2 million in dividends starting in 2028 faces Layer 3 in full unless income is distributed to multiple beneficiaries below the threshold.

The interplay of all three creates a planning environment that Washington did not have five years ago — and that advisors in other states are only beginning to understand. Families with Washington situs assets and multi-generational wealth need to revisit their estate plans specifically through the lens of all three taxes operating simultaneously.

See more Washington guides →