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. This has been true since the state's founding and remains the case today. If you live and work in Washington, you will not file a state income tax return or pay state income tax on your wages.

This is one of nine states in the country with no income tax on wages. The other eight are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, and New Hampshire (which taxes only investment income, not wages). If you moved to Washington from a state that has income tax, or if you work across state lines, understanding how this works matters for your tax filing.

Key Takeaways

  • Washington State collects no income tax on wages, salaries, self-employment income, or retirement distributions.
  • You still file a federal income tax return with the IRS, and you may owe federal tax even though Washington has no state tax.
  • Washington funds state services through sales tax, property tax, and business taxes instead of income tax.
  • If you work in Washington but live in another state, or vice versa, you may owe tax to both states depending on where you earned the income.
  • Washington has a capital gains tax on the sale of certain long-term investments, which is separate from income tax.

How Washington funds state services without income tax

Washington relies on sales tax as its primary source of state revenue. The state sales tax rate is 6.5 percent, and many counties add local sales tax on top of that, bringing the total to between 8.5 and 10.25 percent depending on where you shop. This is one of the highest sales tax rates in the country.

The state also collects property tax (which varies by county), business and occupation tax (a tax on gross business revenue), and excise taxes on fuel, alcohol, and other goods. These sources fund schools, transportation, healthcare, and other state programs. Because Washington has no income tax, residents and businesses pay a larger share of their taxes through consumption and property rather than earnings.

What you still need to file: federal taxes

Even though Washington has no state income tax, you must still file a federal income tax return with the IRS if your income exceeds the federal threshold. For 2024, that threshold is $14,600 for a single person under 65 and $29,200 for a married couple filing jointly (these numbers change each year). You will owe federal income tax based on your total income, filing status, and deductions.

File your federal return by April 15 each year. You do not file a Washington State income tax return because the state does not have one. If you receive a W-2 from your employer, they will not withhold state income tax from your paycheck, but they will withhold federal income tax. If you are self-employed, you pay federal self-employment tax and federal income tax, but no state income tax.

Washington's capital gains tax on investment sales

Washington does tax capital gains — the profit you make when you sell certain long-term investments. As of 2022, Washington taxes capital gains on the sale of stocks, bonds, and other securities if you held them for more than one year and your total gains exceed $250,000 in a single year. The tax rate is 7 percent on gains above that threshold.

This is not the same as income tax. It applies only to investment profits, not to wages or business income. If you sell a home, you do not pay capital gains tax on the profit (federal law exempts up to $250,000 per person). If you sell stocks or mutual funds at a loss, you cannot use that loss to offset capital gains tax owed in Washington, though you can use it on your federal return.

Working across state lines: which state taxes your income

If you live in Washington but work in another state, that other state may tax your income. Oregon, California, and Idaho all have income tax. If you work in one of those states, you will owe income tax to that state on the wages you earned there, even though you live in Washington. You file a return in both states — the state where you worked and your home state (Washington), though Washington will not tax you since it has no income tax.

If you live in another state but work in Washington, Washington will not tax your wages because it has no income tax. However, your home state may tax you on income earned anywhere, including in Washington. Check with your home state's tax authority to understand their rules. Some states tax only income earned within their borders; others tax residents on all income regardless of where it was earned.

If you work for a company based in another state but perform the work remotely from Washington, the rules depend on where your employer is located and where you are considered employed. Many states have moved toward taxing income based on where the work is performed rather than where the company is based, but this varies. Contact your employer's payroll department and your home state's tax authority if you are unsure.

Retirement income and pensions in Washington

Washington does not tax retirement income, including Social Security, pensions, 401(k) distributions, or IRA withdrawals. If you are retired and living in Washington, you will not owe state tax on these income sources. This makes Washington attractive to retirees, particularly those with pensions or substantial retirement savings.

You will still owe federal income tax on most retirement distributions (Social Security has special rules; up to 85 percent may be taxable depending on your total income). File your federal return as usual, but you will have no Washington State return to file. If you moved to Washington after retiring from another state, you do not need to file a return in your former state on retirement income earned after you moved, though you may owe tax on income earned while you still lived there.

Frequently Asked Questions

Do I need to file a Washington State tax return?

No. Washington has no income tax, so there is no state tax return to file. You file only a federal return with the IRS if your income exceeds the federal threshold. Some counties require a business and occupation tax return if you are self-employed, but this is separate from income tax.

If I moved to Washington from a state with income tax, do I owe that state anything?

You may owe tax to your former state on income you earned there before you moved, depending on when you left and how that state's rules work. File a part-year resident return in your former state for the months you lived there. Once you move to Washington, you owe nothing to your former state on future income. Contact that state's tax authority for specific guidance on your situation.

Why is Washington's sales tax so high if there's no income tax?

Washington funds schools, roads, and other services through sales tax, property tax, and business taxes instead of income tax. Sales tax is the largest source. This means you pay a higher percentage of tax on purchases, but you pay nothing on earnings. Whether this is better or worse depends on your spending habits and income level.

Does the capital gains tax apply to my home sale?

No. Federal law exempts up to $250,000 of profit per person (or $500,000 for a married couple) when you sell your primary residence. Washington's capital gains tax applies only to stocks, bonds, and other securities held for more than one year with gains over $250,000 in a single year.

What if my employer withheld Washington State income tax by mistake?

Contact your employer's payroll department immediately and ask them to stop the withholding. If they already withheld money, you will need to file a claim for refund with the IRS on your federal return, since Washington does not process state income tax refunds. Keep records of the withholding and include them with your federal return.