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

Washington is one of nine states with no income tax on what you earn from work. You will not file a state income tax return, and your employer will not withhold state income tax from your paycheck. If you moved to Washington from a state that has income tax, you stop paying it once you establish residency here.

This does not mean Washington has no taxes. The state funds schools, roads, and services through sales tax, property tax, and business taxes instead. Your total tax burden depends on what you spend and own, not what you earn.

Key Takeaways

  • Washington has no state income tax on wages, salaries, or self-employment income from most work.
  • You will still pay federal income tax to the IRS, and that has nothing to do with Washington state law.
  • Washington makes up the revenue through a 10.25% combined state and local sales tax, which is among the highest in the nation.
  • If you own property in Washington, you pay property tax to your county, which varies by location but averages around 0.84% of home value annually.
  • Capital gains tax applies only to long-term gains on stocks and certain other investments above $250,000 per year, not to home sales or retirement accounts.

What you still owe to the federal government

Washington state income tax and federal income tax are separate. The IRS requires you to file a federal return and pay federal tax on your income no matter where you live. Your W-2 or 1099 will show federal withholding, and you file Form 1040 with the IRS each year by April 15.

If you are self-employed or have business income, you owe federal self-employment tax (Social Security and Medicare) in addition to federal income tax. Washington state does not collect either one, but the IRS does.

Sales tax is Washington's main revenue source

Washington charges a combined state and local sales tax of 10.25% on average, though the rate varies by county and city. Some counties run as low as 8.9%, while others reach 11.5%. The tax applies to most goods you buy in stores, but not to groceries, prescription medications, or medical equipment.

If you buy something online from an out-of-state seller, you may owe use tax to Washington, though most people do not pay it voluntarily. Washington has been working to collect sales tax from large online retailers, and many now do charge it at checkout.

Property tax depends on where you own land or a home

Washington counties collect property tax on real estate and some personal property. The statewide average is around 0.84% of assessed home value per year, but rates range from about 0.6% to over 1.1% depending on the county. Your county assessor determines the assessed value, which is usually lower than market value.

Property tax bills arrive once or twice a year depending on your county. If you own a home with a mortgage, your lender may require you to pay property tax through an escrow account as part of your monthly payment. Renters do not pay property tax directly, though landlords pass some of the cost along through rent.

Capital gains tax applies to investment profits above a threshold

Washington enacted a capital gains tax in 2021 that applies only to long-term capital gains (investments held over one year) of more than $250,000 per person per year. The tax rate is 7%. This means if you sell stocks, bonds, or investment property at a profit, you owe tax only if your total gains for the year exceed $250,000.

The capital gains tax does not apply to your home sale, retirement account withdrawals, or most other personal assets. It also does not apply to short-term gains (investments held under one year), which are taxed as federal income instead. The threshold of $250,000 is adjusted annually for inflation.

Business and occupation tax for self-employed and business owners

Washington charges a Business and Occupation (B&O) tax on gross revenue from business activities. The rate depends on the type of business and ranges from 1.5% to 1.75% of gross receipts. This is separate from federal self-employment tax and applies whether or not you make a profit.

If you are a sole proprietor or run a small business, you file a B&O tax return with the Washington Department of Revenue. Some small businesses and certain activities are exempt. The threshold for owing B&O tax is typically $1,200 in annual revenue, though this varies by business classification.

How residency affects your tax obligations

You establish Washington residency for tax purposes when you move here with the intent to stay. This usually means getting a Washington driver's license, registering your vehicle here, and establishing a home address. Once you are a resident, you owe Washington taxes on income earned in the state and property you own here.

If you work remotely for an out-of-state employer while living in Washington, you still owe Washington tax on that income (though Washington has no income tax, so this does not apply). If you work in Washington but live in another state, that other state may try to tax your income — you would need to file in both places and claim a credit to avoid double taxation.

Frequently Asked Questions

Do I have 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 with the federal IRS. If you own a business, you may need to file a B&O tax return with the Washington Department of Revenue, depending on your revenue and business type.

If I moved to Washington from California or New York, do I still owe taxes there?

No, once you establish residency in Washington, you stop owing income tax to your previous state. You should update your driver's license and vehicle registration to show your new address. Your previous state may contact you if they believe you still owe tax, but residency is the key factor.

Does the capital gains tax apply to my 401(k) or IRA?

No. Retirement account withdrawals are not subject to Washington capital gains tax. The capital gains tax applies only to taxable investment accounts (stocks, bonds, real estate) and only when gains exceed $250,000 in a single year.

What if I am retired and living on Social Security?

Washington does not tax Social Security income. You will not owe Washington state tax on your benefits. You may owe federal income tax on Social Security depending on your total income, but that is a federal matter, not a state one.

Are groceries and prescription drugs taxed in Washington?

No. Washington exempts most food for home consumption and prescription medications from sales tax. This includes fruits, vegetables, meat, dairy, and bread. Over-the-counter medications and vitamins are taxed, but prescription drugs are not.