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 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 rule is based on where you live, not where you work.
However, Washington does tax certain types of income that other states might not. Capital gains — profits from selling stocks, real estate, or other investments held less than a year — are taxed at 7% if your gains exceed $250,000 in a single year. Long-term capital gains (held over a year) are also taxed at 7% above that threshold as of 2022. This is a relatively new tax and has faced legal challenges, so the rules may shift.
Washington funds state services through sales tax, property tax, and business taxes instead. The state sales tax is 6.5%, but many counties add local sales taxes on top, bringing the total to 8% to 10.25% depending on where you shop.
Key Takeaways
- Washington residents pay no state income tax on wages, salaries, or most earned income.
- Capital gains above $250,000 in a single year are taxed at 7%, which is a newer tax that applies to investment profits.
- Washington relies on sales tax and property tax to fund state services, so the overall tax burden may be similar to other states despite no income tax.
- If you move to Washington from a state with income tax, you will not owe Washington state income tax on your wages starting the day you establish residency.
Who counts as a Washington resident for tax purposes
You are a Washington resident for tax purposes if you live in the state for more than 183 days in a calendar year, or if you have a permanent home there and spend any part of the year in the state. The state does not require you to file a state income tax return because there is no income tax to report.
If you work in Washington but live in another state, you do not owe Washington state income tax on your wages. Your home state may tax that income instead. If you live in Washington but work in another state, Washington does not tax your wages, but your work state might.
Military members stationed in Washington are generally not considered residents for tax purposes and do not owe Washington taxes on military pay, even if they live on base in the state.
What types of income Washington does not tax
Washington does not tax wages, salaries, tips, self-employment income, rental income, interest, dividends (except capital gains), Social Security benefits, retirement account withdrawals, or unemployment benefits. If your income comes from any of these sources, you owe no Washington state income tax on it.
Retirement income is not taxed in Washington. This includes distributions from 401(k) plans, IRAs, pensions, and annuities. You may owe federal income tax on these withdrawals, but Washington will not tax them.
Gambling winnings are also not subject to Washington state income tax, though they are subject to federal tax and may be subject to local taxes in some cases.
Capital gains tax and investment income
Washington's capital gains tax applies only to long-term capital gains and short-term gains above $250,000 in a single year. If you sell a stock, investment property, or other asset for a profit, the tax applies only if your total capital gains in that year exceed $250,000. The tax rate is 7%.
This tax has been challenged in court on constitutional grounds, and the outcome may change how it is applied or whether it remains in effect. Before making large investment decisions, check the current status of this tax with the Washington Department of Revenue or a tax professional, because the rules may have shifted since this article was written.
Losses from investments can offset gains, so if you sell one asset for a $300,000 profit and another for a $100,000 loss, your net gain is $200,000, which falls below the $250,000 threshold and is not taxed.
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%, and most counties add local sales taxes ranging from 0.5% to 3.625%, bringing the total to between 7% and 10.25% depending on location. This means you pay tax on nearly every purchase of goods and most services.
Property tax is the second major revenue source. Washington homeowners pay property tax based on the assessed value of their home, with rates varying by county. Renters do not pay property tax directly, but landlords often pass the cost along through higher rent.
Business and occupation tax (B&O tax) is a gross receipts tax that businesses pay based on their revenue, not their profit. This tax applies to most types of business activity in the state.
What to do if you move to or from Washington
If you move to Washington from a state with income tax, you stop owing that state's income tax once you establish Washington residency. You will need to file a final return in your previous state for the portion of the year you lived there, and then file a Washington return only if you owe capital gains tax (which most people do not).
If you move away from Washington to a state with income tax, you will owe that state's income tax starting the day you establish residency there. You may need to file a final Washington return for the portion of the year you lived in Washington, though this is usually not required since Washington has no income tax.
Keep records of when you moved, where you lived, and how many days you spent in each state during the year you moved. This documentation helps if either state questions your residency status.
Federal taxes still apply in Washington
Washington has no state income tax, but you still owe federal income tax on all taxable income. Federal tax rates and rules apply the same way in Washington as they do everywhere else in the United States. You must file a federal return with the IRS even though you do not file a Washington state return.
Self-employed people in Washington must pay federal self-employment tax (Social Security and Medicare tax) on their net business income, just as they would in any other state. Washington does not add a state self-employment tax on top of the federal amount.
Frequently Asked Questions
Do I have to file a Washington state tax return?
No. Washington has no state income tax, so there is no state return to file. You still must file a federal return with the IRS if your income exceeds the federal threshold. If you owe capital gains tax, you report it on your federal return, not a separate Washington form.
Will I pay more in sales tax to make up for no income tax?
Washington's sales tax is higher than the national average, and combined with property tax and business taxes, the overall tax burden can be similar to states with income tax. The difference is that you pay tax on purchases rather than earnings, so the impact depends on how much you spend versus how much you earn.
What if I work remotely for a company in another state?
If you live in Washington and work remotely for an out-of-state company, you owe no Washington state income tax. Your employer's state generally cannot tax you either. You owe only federal income tax. Check with a tax professional if your employer is in a state with strict remote work tax rules.
Are retirement accounts taxed differently in Washington?
No. Withdrawals from 401(k)s, IRAs, pensions, and annuities are not taxed by Washington state. You may owe federal income tax on these withdrawals depending on the account type and your total income, but Washington adds no state tax on top.
If I inherit money or property, do I owe Washington tax on it?
Washington has no inheritance tax or estate tax. You do not owe Washington state tax on inherited money or property. You may owe federal estate tax if the estate is very large, but that is a federal rule, not a Washington rule.