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

Washington State has no tax on the money you earn from a job, self-employment, or most other personal income sources. This is one of the few states in the country with this structure. You will not file a state income tax return to Washington, and your employer will not withhold state income tax from your paycheck.

However, Washington does tax certain types of income and has other taxes that affect your household budget. Understanding what is and is not taxed helps you plan for what you actually owe.

Key Takeaways

  • Washington has no state income tax on wages, salaries, self-employment income, or most retirement income.
  • Washington taxes capital gains (profits from selling stocks, real estate, or other investments) at 7 percent if you sell more than $250,000 in gains in a year.
  • Washington has a sales tax (ranging from 6.5 to 10.25 percent depending on location) that applies to most purchases.
  • If you work in Washington but live in another state, or work in another state but live in Washington, different rules may apply to what you owe.

What Washington does tax: capital gains and investments

While Washington does not tax your paycheck, it does tax capital gains — the profit you make when you sell an investment for more than you paid for it. This includes stocks, bonds, real estate (except your primary home), and other assets held for investment.

The capital gains tax rate is 7 percent, but it only applies if your total capital gains in a year exceed $250,000. If you sell investments and make $100,000 in profit, you owe nothing. If you make $300,000 in profit, you owe 7 percent on the $300,000 (not just the amount over $250,000). The tax is due when you file your federal return, typically by April 15.

Selling your primary home is exempt from this tax. Retirement account withdrawals from IRAs and 401(k)s are also exempt, though they may be taxed federally.

Sales tax is where Washington collects most revenue

Washington makes up for the lack of income tax by charging sales tax on most goods and some services. The state sales tax rate is 6.5 percent, but your local rate is higher because cities and counties add their own tax on top. Depending on where you live and shop, the total rate ranges from 6.5 to 10.25 percent.

Sales tax applies to clothing, groceries, electronics, restaurant meals, and most other purchases. A few items are exempt: prescription medications, some medical equipment, and certain foods bought for home consumption (but not prepared foods). Services like haircuts, car repairs, and plumbing are generally taxed.

You do not file anything for sales tax — it is collected at the register. But if you run a business or sell items online, you may need to collect and send sales tax to the state.

Other Washington taxes that affect your household

Property tax is assessed on real estate you own. The rate varies by county but is typically between 0.7 and 1.1 percent of your home's assessed value per year. If your home is assessed at $400,000 and your county rate is 0.9 percent, you owe about $3,600 per year. This is usually paid through your mortgage escrow account or directly to your county assessor.

Excise tax is added to specific items: gasoline (currently about 49.4 cents per gallon), cigarettes, alcohol, and recreational marijuana. These taxes are built into the price you pay at the pump or store.

Business and occupation (B&O) tax applies only if you are self-employed or own a business. The rate depends on your business type and ranges from 1.5 to 3.3 percent of gross income. You file this annually with the Department of Revenue.

If you work across state lines

If you live in Washington but work in Oregon, Idaho, or another state, you may owe income tax to that state on the wages you earned there. Most states require you to pay tax where you work, not where you live. You would file a non-resident return in the state where you worked and may be able to claim a credit on your federal return to avoid double taxation.

If you live in Oregon or Idaho but work in Washington, you generally do not owe Washington income tax (since Washington has none), but you may owe income tax to your home state on all your income. Check with the state where you live for their specific rules.

If you are unsure whether you owe tax in another state, contact that state's Department of Revenue or consult a tax professional who handles multi-state situations.

How to file if you have capital gains or business income

If your only income is wages from an employer, you do not file a Washington state return. Your federal return is all you need.

If you have capital gains over $250,000 in a year, you report this on your federal tax return (Form 1040, Schedule D). Washington does not require a separate state return, but you will owe the 7 percent capital gains tax. The amount is typically calculated when you file federal taxes, and you pay it to Washington by the same April 15 deadline.

If you are self-employed or own a business, you file a B&O tax return with the Washington Department of Revenue, usually by April 15 each year. You report your gross income (not profit) and pay the tax based on your business classification.

Frequently Asked Questions

Do I have to file a Washington state tax return?

Only if you have capital gains over $250,000 in a year, are self-employed, or own a business. If you earn only wages and have no capital gains, you do not file a Washington return.

Why does Washington have no income tax?

Washington's state constitution has historically been interpreted to prohibit an income tax without a statewide vote. The state funds itself through sales tax, property tax, excise tax, and business taxes instead.

If I move to Washington from another state, do I owe back income tax?

No. Washington does not tax income earned after you move there. If you earned income in your previous state before moving, you may still owe that state's income tax on those wages, but Washington will not tax them.

Are retirement withdrawals taxed in Washington?

Withdrawals from IRAs and 401(k)s are not taxed by Washington State. They are taxed federally, but Washington does not add a state tax on top. Social Security benefits are also not taxed by Washington.

What if I sell my house — do I pay capital gains tax?

No. The sale of your primary residence is exempt from Washington's capital gains tax, even if you make a large profit. Only investment property sales are subject to the tax.