Washington does not have a state income tax on wages or salaries

Washington State does not levy an income tax on what you earn from a job, self-employment, or retirement accounts. You will not file a state income tax return to Washington, and the state does not withhold income tax from your paycheck. This has been true since Washington's founding and remains the case today.

However, Washington does tax certain types of income that other states might not. The state taxes capital gains — profits from selling stocks, bonds, real estate, or other investments — at a flat rate of 7 percent on gains over $250,000 per year. Washington also collects sales tax, property tax, and business-related taxes to fund state operations.

If you work in Washington but live in another state, or vice versa, your home state's rules determine whether you owe income tax. Washington will not claim a share of your wages regardless of where you live.

Key Takeaways

  • Washington State does not tax wages, salaries, or most retirement income, so you will not file a state income tax return.
  • Washington does tax capital gains — profits from selling investments — at 7 percent on gains exceeding $250,000 per year.
  • The state funds itself through sales tax (currently 6.5 percent statewide, higher in some counties), property tax, and business taxes.
  • If you work across state lines, your state of residence determines your income tax obligation, not Washington.

What income Washington does not tax

Wages and salaries from employment are completely exempt from Washington State income tax. This includes tips, bonuses, and commissions. If you are self-employed, you do not owe Washington income tax on your net business income either, though you will still owe federal self-employment tax.

Retirement income is also untaxed in Washington. Distributions from 401(k) plans, IRAs, pensions, and annuities do not trigger state income tax. Social Security benefits are not taxed by Washington. Interest and dividend income from savings accounts, bonds, and most stocks are not taxed — only capital gains on the sale of those assets are.

Unemployment benefits, workers' compensation, and disability payments are not subject to Washington State income tax. Gifts and inheritances are also free from state income tax.

Capital gains tax: the one investment income Washington taxes

Washington's capital gains tax applies only to long-term capital gains — profits from selling an asset you held for more than one year. The tax rate is a flat 7 percent. The tax only applies to gains above $250,000 in a single year, meaning the first $250,000 of your gains each year is exempt.

If you sell a stock for $50,000 profit, you owe nothing. If you sell a rental property for $400,000 profit, you owe 7 percent on $150,000 (the amount over $250,000), which equals $10,500. Short-term capital gains — from selling something you held less than a year — are not subject to this tax.

The capital gains tax applies to Washington residents on gains from any asset, and to non-residents on gains from Washington property only. If you live in another state and sell stocks, Washington will not tax those gains even if you owned the stock while living in Washington.

How Washington funds state services without income tax

Washington relies on sales tax as its primary revenue source. The state sales tax is 6.5 percent, but most counties add a local portion, bringing the total to between 8.4 and 10.25 percent depending on where you shop. This is one of the highest combined sales tax rates in the nation.

Property tax funds schools and local government. Washington homeowners pay property tax based on the assessed value of their home, typically between 0.7 and 1.1 percent of home value annually. Renters do not pay property tax directly, but landlords pass the cost along through rent.

Business and occupation tax (B&O tax) is levied on gross business income at rates between 1.5 and 1.75 percent depending on the type of business. Excise taxes on fuel, alcohol, and tobacco also contribute to state revenue.

If you work across state lines

Your state of residence determines whether you owe income tax on wages, not the state where you work. If you live in Washington and work in Oregon (which has income tax), you owe Oregon income tax on those wages. If you live in Oregon and work in Washington, you owe Oregon income tax on your Washington wages.

Some states offer tax credits to residents who pay income tax to another state, reducing double taxation. Oregon, for example, allows residents to claim a credit for taxes paid to Washington. Check with your home state's tax authority about reciprocal agreements.

If you are a Washington resident who works remotely for a company in another state, you do not owe that state's income tax. Washington will not tax your wages either. You owe federal income tax only.

Frequently Asked Questions

Do I have to file a Washington State income tax return?

No. Washington does not require residents to file a state income tax return because there is no state income tax on wages. You will still file a federal return if your income exceeds the federal threshold, but Washington has no state return to file.

Will Washington tax my retirement income or Social Security?

No. Distributions from retirement accounts, pensions, and Social Security are not taxed by Washington State. You will owe federal income tax on most retirement income, but Washington takes no share.

What if I sell a house — do I owe capital gains tax?

No. The capital gains tax applies only to investment assets like stocks and bonds, not to real estate. Selling your primary residence, rental property, or land does not trigger Washington's capital gains tax, though you may owe federal capital gains tax if the gain is large.

If I move to Washington from a state with income tax, do I owe back taxes?

No. Once you establish residency in Washington, you owe Washington tax only on income earned after you move. Your previous state may pursue taxes owed while you lived there, but Washington will not. Contact your former state's tax authority about any outstanding obligations.

Does Washington tax remote work income if my company is out of state?

No. Washington taxes only income earned within the state or by Washington residents on certain investments. If you live in Washington and work remotely for an out-of-state company, Washington does not tax that income. You owe federal tax only.