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

Washington is one of nine states with no tax on personal income. You do not pay a state income tax on wages, salaries, tips, or most other forms of earned income. This applies whether you work in Washington or live there — the state simply does not collect this tax.

However, Washington does tax other things. The state relies on sales tax, property tax, and business taxes to fund schools, roads, and services. Understanding what Washington does tax matters if you live or work there, because you will encounter these taxes even though there is no income tax.

Key Takeaways

  • Washington has no state income tax on wages, salaries, or most earned income, and this applies to all residents and workers regardless of income level.
  • Washington taxes retail sales at a state rate of 6.5 percent, plus local sales taxes that vary by county and city, making total sales tax between 8.1 and 10.25 percent depending on location.
  • Property owners pay property tax to their county, with rates varying widely — from roughly 0.7 to 1.0 percent of home value depending on the county.
  • Washington taxes capital gains (profits from selling stocks or investment property) at 7 percent on gains over $250,000 per year, though some gains are excluded.
  • Retirement income like Social Security and most pension payments are not taxed by Washington state.

What Washington taxes instead of income

Sales tax is Washington's largest revenue source. The state sales tax rate is 6.5 percent on most retail purchases. On top of that, cities and counties add their own local sales taxes. Your total sales tax depends on where you shop — it ranges from 8.1 percent in some areas to 10.25 percent in others. This tax applies to clothing, groceries, restaurant meals, and most goods, though a few items like prescription drugs are exempt.

Property tax is collected by counties and funds schools and local services. If you own a home or land in Washington, you pay property tax annually. The rate varies by county — it is not set statewide. Most counties charge between 0.7 and 1.0 percent of your home's assessed value per year, but some are higher or lower. A $400,000 home might generate $2,800 to $4,000 in annual property tax depending on the county.

Capital gains tax applies to profits from selling stocks, bonds, investment real estate, or other capital assets. Washington taxes capital gains at 7 percent, but only on gains above $250,000 in a single year. If you sell $300,000 worth of stock at a $100,000 profit, you would owe tax on only that $100,000 gain, and only if your total gains for the year exceed $250,000. Long-term gains on your primary residence are exempt.

Who does and does not pay Washington income tax

No one in Washington pays state income tax on wages or salaries — not high earners, not low earners, not anyone. This is true whether you are a resident, a non-resident who works in Washington, or someone who moved to the state recently. There is no threshold, no phase-out, no exception. The tax does not exist.

However, you may still owe federal income tax to the IRS. Washington's lack of state income tax does not change your federal obligations. You file a federal return as you would in any state. Some people also owe taxes to other states if they worked there during the year or moved between states.

How Washington's tax system compares to other states

Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). Most other states tax income at rates between 3 and 13 percent. States without income tax typically rely more heavily on sales tax and property tax to replace that revenue.

Washington's sales tax is higher than the national average because the state has no income tax. The combined state and local sales tax in Washington averages around 9 percent, which is above the U.S. average of 7.3 percent. This means residents pay more at the register but less on their paychecks. Whether this is better or worse depends on your spending and income level — high earners and low spenders may come out ahead, while people with low income who spend most of what they earn may pay more overall.

Retirement income and special cases

Social Security benefits are not taxed by Washington state. Pension income from government or military service is also exempt. However, some retirement account withdrawals may be taxed. If you withdraw money from a traditional IRA or 401(k), Washington does not tax that withdrawal — but the federal government does. Roth IRA withdrawals are not taxed by anyone.

Unemployment benefits, workers' compensation, and disability payments are not taxed by Washington. Interest and dividend income are also not taxed by the state, though they are taxed federally. If you receive rental income from property you own in Washington, that income is not subject to state income tax, but it is subject to federal tax.

What to do if you work in Washington but live elsewhere

If you live in another state and work in Washington, you do not owe Washington state income tax because Washington has none. You owe income tax to your home state instead, based on the laws of that state. Some states tax residents on all income regardless of where it was earned; others tax only income earned within the state. Check your home state's rules.

If you work in a state with income tax and live in Washington, you typically owe that state's income tax on the wages you earned there. Washington will not tax you, but the state where you worked will. You may be able to claim a credit on your Washington taxes (if you had any), but since Washington has no income tax, this does not apply. File a return in the state where you worked and report that income to the IRS.

Frequently Asked Questions

Do I have to file a state tax return in Washington?

No. Washington has no state income tax, so there is no state return to file. You still file a federal return with the IRS if you meet the federal income threshold, but Washington does not require a state return.

If I move to Washington from another state, do I owe back taxes?

No. Once you establish residency in Washington, you owe no state income tax going forward. Your previous state may tax income you earned while you lived there, but that is separate. Check with your former state about when your tax obligation to them ends.

Are business owners taxed differently in Washington?

Business owners do not pay income tax on business profits in Washington. However, they may owe federal self-employment tax and federal income tax. Some businesses also pay Washington's business and occupation tax, which is a gross revenue tax on certain types of business activity — not an income tax, but a separate tax based on sales or receipts.

Does Washington tax investment income like dividends or interest?

No. Dividends, interest, and most investment income are not taxed by Washington state. They are taxed by the federal government, but Washington does not collect state tax on this income.

What if I inherit money or property in Washington?

Washington has no inheritance tax or estate tax. You do not owe Washington state tax on money or property you inherit. The federal government may tax very large estates, but that is a separate matter from state tax.