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

Washington State does not tax the money you earn from a job, self-employment, or retirement income. There is no state income tax return to file, and your employer does not withhold state income tax from your paycheck. This is one of nine states in the country with no income tax on wages.

However, Washington does collect revenue through other taxes. You will pay sales tax when you buy goods, property tax if you own real estate, and certain capital gains taxes under specific conditions. Understanding what Washington taxes and what it does not helps you plan your budget and know what forms you actually need to file.

Key Takeaways

  • Washington has no state income tax on wages, salaries, or retirement income, so you do not file a state income tax return.
  • Washington taxes most retail purchases through sales tax, which varies by county and city but ranges from 6.5% to 10.25%.
  • Property owners pay property tax based on assessed home value, and rates vary by county.
  • A capital gains tax of 7% applies only to long-term gains on certain investments sold for more than $250,000 in a single year.
  • You still file a federal income tax return with the IRS, because the federal government taxes income regardless of state policy.

What Washington taxes instead of income

Washington relies on sales tax as its largest source of state revenue. When you buy most goods at a store, online, or from a restaurant, you pay sales tax at checkout. The state sales tax rate is 6.5%, but cities and counties add their own local sales taxes on top of that. Your total sales tax rate depends on where you live and ranges from 6.5% to 10.25% depending on location.

Property tax is the second major revenue source. If you own a home, land, or other real property in Washington, your county assessor determines the value and you receive a property tax bill. The tax rate varies by county and school district but typically ranges from 0.84% to 1.1% of assessed value per year. Renters do not pay property tax directly, though landlords may pass some costs to tenants through rent.

Washington also taxes certain capital gains. If you sell stocks, bonds, or other long-term investments and your profit exceeds $250,000 in a single calendar year, you owe a 7% tax on the gains above that threshold. This applies only to investments held for more than one year. Short-term capital gains and gains under $250,000 are not taxed at the state level.

Why Washington has no income tax

Washington's constitution has been interpreted to prohibit a tax on income without a vote of the people. The state has attempted to pass income taxes multiple times over the past 40 years, but each attempt either failed in the legislature or was struck down by courts. The most recent effort was in 2021, when lawmakers passed a capital gains tax that was later challenged in court.

Because income tax is off the table, Washington funds schools, roads, and state services through sales tax, property tax, business taxes, and other fees. This structure means lower-income households often pay a higher percentage of their income in taxes overall, because sales tax takes a larger bite from people who spend most of what they earn.

Federal income tax still applies

Even though Washington has no state income tax, you must still file a federal income tax return with the IRS. The federal government taxes income regardless of whether your state does. You will owe federal tax on wages, self-employment income, investment income, and other sources, and your employer will withhold federal tax from your paycheck.

The federal filing deadline is April 15 each year. You file using IRS Form 1040 and any schedules that apply to your situation. If you are self-employed, you also file Schedule C and pay self-employment tax. The IRS has no connection to Washington State's tax system, so the absence of state income tax does not change your federal obligations.

Self-employed and business owners

If you are self-employed or own a business in Washington, you do not pay state income tax on your business income. However, you do pay federal self-employment tax and federal income tax on your net business income. You also may owe Washington's Business and Operations Tax (B&O tax) if your gross income exceeds certain thresholds, depending on your business classification.

The B&O tax is a gross receipts tax, meaning it is calculated on total revenue before expenses, not on profit. Rates vary by business type: service and other activities are taxed at 1.5%, retailing at 0.471%, wholesaling at 0.484%, and manufacturing at 0.484%. Many small businesses fall below the reporting threshold and do not owe B&O tax. You can check your specific situation through the Washington Department of Revenue website.

Retirement income and pensions

Washington does not tax retirement income, including Social Security benefits, pension payments, or distributions from retirement accounts like IRAs and 401(k)s. If you are retired and living in Washington, you will not owe state tax on these income sources. This applies whether you are receiving a pension from a government employer, a private employer, or withdrawals from your own retirement savings.

However, you still owe federal income tax on most retirement income. Social Security benefits may be partially taxable at the federal level depending on your total income. Withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income by the federal government. Roth IRA withdrawals are generally not taxed federally if you meet certain conditions. Consult the IRS or a tax professional about your specific situation.

Moving to or from Washington

If you move to Washington from a state with income tax, you will no longer owe that state's income tax once you establish residency in Washington. Residency is typically established when you move your permanent home, register to vote, get a driver's license, or register a vehicle in the state. You may still owe taxes to your previous state for income earned while you lived there.

If you move away from Washington to a state with income tax, you will owe that state's income tax on income earned after you move. Your previous state may also tax income you earned while living there. The timing of your move within the tax year affects which state gets to tax which portion of your income, so keep records of when you changed residency.

Frequently Asked Questions

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

No. Washington has no state income tax, so you do not file a state income tax return. You still file a federal return with the IRS if your income meets the federal filing threshold.

Will my paycheck have state income tax withheld?

No. Your employer withholds federal income tax and Social Security and Medicare taxes, but not Washington State income tax. Your take-home pay will be higher than it would be in a state with income tax, assuming the same federal withholding.

What if I work in Washington but live in another state?

You do not owe Washington State income tax because Washington has none. You owe income tax to the state where you live. Some states tax residents on income earned anywhere, while others tax only income earned within the state. Check your home state's rules.

Are there any Washington taxes I should know about besides sales tax?

Yes. Property owners pay property tax based on home value. Business owners may owe B&O tax on gross revenue. Anyone selling investments for more than $250,000 in gains in one year owes capital gains tax. You also pay federal income tax regardless of state policy.

If Washington has no income tax, why is my tax bill so high?

Washington's sales tax is higher than most states to make up for lost income tax revenue. Combined state and local sales tax can reach 10.25%, and it applies to most purchases. Lower-income households spend a larger share of earnings on taxable goods, so they pay a higher percentage of income in sales tax overall.