Washington State Does Not Charge a State Income Tax

Washington State has no state income tax on wages, salaries, or most other forms of personal income. This has been true since the state's founding and remains the case today. If you work in Washington or live there, you do not pay state income tax on what you earn.

This does not mean Washington residents pay no state taxes at all. The state funds schools, roads, and services through other taxes: sales tax, property tax, business taxes, and capital gains tax. But the tax on your paycheck itself does not exist in Washington.

Key Takeaways

  • Washington State collects no income tax on wages, salaries, or self-employment income, and has not since statehood.
  • You still owe federal income tax to the IRS, and Washington's sales tax (currently 6.5 percent statewide, higher in some counties) applies to most purchases.
  • Washington does tax capital gains — profits from selling stocks, real estate, or other investments — at 7 percent on gains over $250,000 per year.
  • If you work in Washington but live in another state, you may owe income tax to your home state, not to Washington.
  • Retirees and people living on investment income pay no state income tax in Washington, though they pay sales tax and property tax like everyone else.

Why Washington Has No Income Tax

Washington's constitution, adopted in 1889, prohibits a direct tax on income. The state's founders chose to fund government through sales tax and property tax instead. That constitutional language has never changed, and attempts to introduce an income tax have failed repeatedly in the legislature and at the ballot.

In 2021, Washington introduced a capital gains tax — a 7 percent tax on profits from selling stocks, bonds, real estate, and other investments, but only on gains above $250,000 in a single year. This is not an income tax and does not apply to wages. It has faced legal challenges but remains in effect.

What Taxes You Do Pay in Washington

Without an income tax, Washington relies heavily on sales tax. The state sales tax is 6.5 percent, but most counties add a local portion, bringing the total to between 8.1 and 10.25 percent depending on where you shop. Sales tax applies to most goods and some services, though groceries, prescription drugs, and a few other items are exempt.

Property tax is another major source of state and local revenue. If you own a home or land in Washington, you pay property tax to your county. The rate varies by county but averages around 0.84 to 0.98 percent of the home's assessed value per year.

Washington also taxes businesses through a business and occupation tax (B&O tax), which applies to gross revenue rather than profit. Self-employed people and small business owners may owe this tax depending on their income and business structure.

Federal Income Tax Still Applies

Having no state income tax does not exempt you from federal income tax. The IRS requires you to file a federal return and pay federal tax on your income, just as residents of every other state do. Your federal tax rate depends on your income level and filing status, not on where you live.

You file your federal return with the IRS using Form 1040 and related schedules. Washington State does not require a separate state income tax return because there is no state income tax to report. If you work in Washington and live there, you file only your federal return.

If You Work in Washington but Live Elsewhere

If you live in another state and work in Washington, you generally owe income tax to your home state, not to Washington. Washington does not tax non-residents on wages earned within the state. Your home state may tax you on all income, including what you earn in Washington, depending on that state's rules.

Some states have reciprocal agreements with their neighbors that affect where you owe tax. Oregon, for example, taxes Washington residents who work in Oregon. Check with your home state's tax authority or a tax preparer to understand your specific situation.

Capital Gains Tax: The Exception

Washington's capital gains tax, enacted in 2021, is the closest thing the state has to an income tax, but it applies only to investment profits, not wages. The tax is 7 percent on the portion of your capital gains that exceeds $250,000 in a calendar year.

Capital gains include profits from selling stocks, bonds, mutual funds, real estate (other than your primary home, which is exempt), and other investments. If you sell an investment for $50,000 more than you paid for it, that $50,000 is a capital gain. The tax applies only if your total capital gains in the year exceed $250,000.

This tax has been challenged in court on constitutional grounds. As of now it remains in effect, but the legal status could change. If you have significant investment income, monitor Washington State Department of Revenue announcements or consult a tax professional.

How Washington's Tax System Compares

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). These states fund services through sales tax, property tax, and business taxes at higher rates than states with income tax.

Washington's sales tax rate is higher than the national average because the state relies on it heavily. Residents and visitors pay sales tax on nearly every purchase. Over time, this can mean higher total tax burden for low-income households, which spend a larger share of their income on taxable goods, and lower burden for high-income households, which spend less of their income on consumption.

Frequently Asked Questions

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

No. Washington has no state income tax, so you do not file a state return. You file only your federal return with the IRS. If you have capital gains over $250,000 in a year, you report those on your federal return, and Washington's capital gains tax is calculated based on that federal report.

If I'm retired and living on Social Security and investments, do I owe Washington State tax?

You owe no state income tax on Social Security or investment income in Washington. You do pay sales tax on purchases and property tax if you own a home. If you have capital gains over $250,000 in a year, you owe the capital gains tax on the amount above that threshold.

Does Washington tax remote workers who live out of state?

No. Washington does not tax non-residents on income earned in the state. If you live in Oregon, California, or anywhere else and work remotely for a Washington company, you owe no Washington State tax. You owe income tax to your home state instead.

What if I move to Washington from a state with income tax?

You stop owing income tax to your former state once you establish residency in Washington. You may owe tax to your old state for the portion of the year you lived there. File a part-year return with your former state and a full-year federal return. Keep documentation of your move date.

Is the capital gains tax permanent?

The capital gains tax is currently in effect, but it has faced legal challenges. The Washington Supreme Court has not yet ruled on whether it violates the state constitution's ban on income tax. Monitor the Department of Revenue website or consult a tax professional if you have large capital gains.