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, a business, or self-employment. You will not see a state income tax line on your pay stub, and you will not file a state income tax return to the state of Washington. This is one of nine states in the country with no income tax on wages.

However, Washington does collect taxes in other ways. The state relies on sales tax, property tax, and business taxes to fund schools, roads, and services. If you live or work in Washington, you will pay these other taxes even though you do not pay income tax on your earnings.

The lack of income tax does not mean Washington has no tax burden. A household's total tax load depends on how much they spend, what property they own, and what type of business income they report.

Key Takeaways

  • Washington State does not tax wages, salaries, or most self-employment income, so you will not file a state income tax return.
  • Washington funds state services through sales tax (currently 6.5% statewide, plus local additions), property tax, and business taxes instead.
  • Capital gains — money from selling stocks, real estate, or other investments — are taxed at 7% if the gain exceeds $250,000 in a single year.
  • If you work in another state but live in Washington, you may owe income tax to that other state, not to Washington.
  • Retirees do not pay Washington State income tax on pensions, Social Security, or retirement account withdrawals.

What Washington taxes instead of income

Sales tax is Washington's largest source of tax revenue. The state sales tax rate is 6.5%, but most cities and counties add their own local sales tax on top of that. Depending on where you shop, the total sales tax can range from 6.5% to over 10%. This tax applies to most goods you buy, though groceries and prescription medications are exempt.

Property tax is collected by counties and school districts. The rate varies by location but typically ranges from 0.84% to 1.1% of your home's assessed value per year. Property tax funds local schools, fire departments, and county services. If you own a home or land in Washington, you will receive a property tax bill annually.

Business and occupation (B&O) tax is a tax on gross business income, not net profit. Sole proprietors, partnerships, and corporations all pay this tax if they operate in Washington. The rate depends on the type of business — retailing, wholesaling, manufacturing, and services each have different rates, ranging from 1.5% to 1.75% of gross revenue.

Capital gains tax applies to profits from selling stocks, bonds, real estate, or other investments. Washington taxes capital gains at 7% if your total gains in a year exceed $250,000. Gains below that threshold are not taxed. This tax took effect in 2022 and applies only to high-value investment sales.

Capital gains tax: who pays and how it works

The capital gains tax in Washington applies only to individuals whose total capital gains in a calendar year exceed $250,000. If you sell a stock for a $100,000 profit and a rental property for a $200,000 profit in the same year, your total gains are $300,000, and you owe tax on the $50,000 above the threshold.

The tax rate is a flat 7% on gains above $250,000. Long-term gains (assets held over one year) and short-term gains (assets held one year or less) are taxed at the same rate. You report capital gains to the Washington Department of Revenue, not the IRS, though you will also report them on your federal return.

Certain gains are exempt from Washington's capital gains tax. These include gains from selling your primary residence, gains from selling agricultural land, and gains from selling timber. If you are unsure whether a specific sale is taxable, the Department of Revenue website has detailed guidance by asset type.

If you work in another state but live in Washington

Washington's lack of income tax does not protect you from taxes in other states. If you work in Oregon, California, or any other state that has income tax, you will owe that state's income tax on the wages you earn there. You file a return in the state where you worked and pay tax according to that state's rates and rules.

You will not owe Washington State income tax on those wages because Washington has no income tax. However, you may be able to claim a credit on your federal return for taxes paid to another state, which reduces what you owe the IRS. The rules for this credit vary depending on your income and the states involved.

If you work remotely for a company based in another state but live in Washington, the tax treatment depends on where you physically perform the work. Most states tax income based on where the work is done, not where the company is located. Check with the state where your employer is based or where you work to confirm your filing obligations.

Retirement income and Washington taxes

Washington does not tax retirement income of any kind. If you receive a pension from a former employer, Social Security benefits, distributions from a 401(k) or IRA, or income from an annuity, Washington State will not tax that money. This is true even if you worked in another state and that state taxes pensions — once you move to Washington, you owe no state income tax on retirement withdrawals.

You will still owe federal income tax on most retirement income, and you may owe taxes to the state where you worked if you receive a pension from that state. But Washington itself collects no tax on retirement income. This makes Washington an attractive state for retirees on fixed incomes.

How to report Washington capital gains or B&O tax

If you owe Washington capital gains tax, you report it on Form WA-1040, which is not an income tax return but a capital gains tax return. You file this form with the Washington Department of Revenue by April 15 of the year following the sale. You will also report the same gains on your federal Form 1040, Schedule D.

If you operate a business in Washington and owe B&O tax, you register with the Department of Revenue and file returns quarterly or annually depending on your gross revenue. The frequency and method of filing depend on your business structure and the amount of revenue. You can register online through the Department of Revenue's website.

You do not file a state income tax return in Washington under any circumstances, because there is no state income tax. If someone tells you that you must file a Washington State income tax return, they are mistaken or referring to a different state.

Frequently Asked Questions

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

No. Washington has no income tax, so there is no state income tax return to file. You file a federal return to the IRS, but not to Washington State. The only exception is if you owe capital gains tax on investment sales over $250,000 in a year — then you file Form WA-1040 with the Department of Revenue.

If I move to Washington from a state with income tax, do I owe back taxes?

No. Your tax obligation to another state ends when you move and establish residency in Washington. You may owe taxes to your former state on income earned while you lived there, but once you leave, you owe nothing to that state on future income. Washington will not tax your income once you are a resident.

Does Washington tax Social Security or retirement account withdrawals?

No. Washington does not tax Social Security, pensions, 401(k) withdrawals, IRA distributions, or any other retirement income. You will owe federal tax on most retirement income, but Washington State collects nothing. This applies regardless of which state you worked in before retiring.

What is the sales tax rate in Washington?

The state sales tax is 6.5%, but most cities and counties add local sales tax on top of that. Your total sales tax rate depends on where you make the purchase. Some areas have a combined rate over 10%. Groceries and prescription medications are exempt from sales tax statewide.

If I sell my house, do I owe Washington capital gains tax?

No. Sales of your primary residence are exempt from Washington's capital gains tax, no matter how much profit you make. If you sell a second home or investment property, the capital gains tax may apply if your total gains exceed $250,000 in the year of sale.