Washington has no state income tax on wages, salary, pensions, or Social Security, and there is no state income tax return to file on earned income.1Washington Department of Revenue. Income Tax The only federal-style income tax the state imposes is a capital gains tax that kicks in above $250,000 in long-term gains per year. Beyond that, residents pay two mandatory payroll deductions out of each paycheck, and self-employed people owe a gross receipts tax on business activity. Everything you actually owe the state falls into one of those buckets.
What Washington Does Not Tax
Your W-2 earnings, freelance pay, pension distributions, and Social Security benefits are all free from state-level income taxation. No state income tax is withheld from a Washington paycheck, and there is no annual state return to file for that income. For most residents, the entire state tax system comes down to sales tax at the register and the two payroll deductions described below.
The exception is the capital gains tax, and it only reaches a small slice of households.
The Capital Gains Tax
Washington taxes the sale or exchange of long-term capital assets like stocks, bonds, and business interests.2Washington State Legislature. Washington Code 82.87 – Capital Gains Tax The tax applies only to gains exceeding a $250,000 standard deduction per year. The Washington Supreme Court upheld the tax in Quinn v. State, treating it as an excise tax on the privilege of selling assets rather than a tax on income.3Washington State Courts. Quinn v State, No 100769-8
Rates for 2025 and Beyond
Starting with tax year 2025, Washington moved from a flat rate to a tiered structure:4Washington Department of Revenue. New Tiered Rates for Washingtons Capital Gains Tax
- 7% on taxable capital gains up to $1,000,000
- 9.9% on taxable capital gains above $1,000,000
Taxable capital gains means your total Washington long-term gains minus the $250,000 standard deduction. On $1,500,000 in long-term gains, you subtract $250,000, leaving $1,250,000 taxable. The first $1,000,000 is taxed at 7% ($70,000) and the remaining $250,000 at 9.9% ($24,750), for a total of $94,750.
What Is Exempt
Several categories of gains are carved out entirely:5Washington State Legislature. Washington Code 82.87.050 – Exemptions
- Gains from real property transferred by deed or contract.
- Gains inside retirement accounts (401(k), 403(b), 457(b), and IRA).
- The portion of a gain on a privately held entity interest that is directly attributable to real estate the entity owns.
- Livestock held for farming or ranching purposes for more than 12 months, when the gain is treated as a capital gain federally.
Washington also allows a charitable donation deduction. If you donate more than $250,000 to qualified organizations in the same tax year, you can deduct the excess amount from your Washington capital gains, up to a maximum deduction of $100,000.6Washington State Legislature. Washington Code 82.87.080 – Deductions
Filing and Deadlines
If your long-term capital gains exceed $250,000, you file a return with the Washington Department of Revenue. The starting point is your federal Schedule D, and only assets held longer than one year count toward the Washington calculation. Returns go through the Department’s “My DOR” online portal, and the deadline matches the federal income tax deadline, typically April 15.7Washington Department of Revenue. Capital Gains Tax Keep documentation for any exemption you claim, especially for real estate attributable to the sale of an entity interest.
Missing April 15 triggers penalties and interest. You can avoid late-payment penalties by submitting an estimated payment by the original deadline, but if that payment covers less than 80% of your actual liability, a substantial underpayment penalty still applies.7Washington Department of Revenue. Capital Gains Tax If you need to estimate, lean high. A refund on the overage is easy; an underpayment penalty is not.
Payroll Deductions Every Washington Worker Pays
Even without an income tax, two state-level deductions show up on every Washington paycheck. Both fund benefit programs administered by the Employment Security Department, and the rates changed meaningfully for 2026.
Paid Family and Medical Leave
As of January 1, 2026, the total Paid Family and Medical Leave premium is 1.13% of gross wages (excluding tips), up to the Social Security wage cap of $184,500.8Washington State’s Paid Family and Medical Leave. Estimate Your Paid Leave Payments That is up from 0.74% in 2024. Employees pay 71.43% of the premium; employers with 50 or more employees pay the other 28.57%. Smaller employers don’t owe the employer share but still collect and remit the employee portion.
On a $75,000 salary, the employee contribution comes to roughly $605 per year. At or above the $184,500 cap, the employee portion maxes out around $1,489 per year.
WA Cares Fund
The WA Cares Fund finances a long-term care benefit for Washington residents. The premium is 0.58% of gross wages with no cap, and employees pay all of it; employers owe nothing.9WA Cares Fund. Employer Information On a $75,000 salary, that comes to $435 per year.
Some workers are exempt. People who had private long-term care insurance and were approved for an exemption before December 31, 2022 are permanently out, though that window is closed to new applicants. Current exemptions cover workers who live outside Washington, active-duty military members and their spouses, veterans with a 70% or higher service-connected disability rating, and holders of non-immigrant work visas (automatically exempt as of January 1, 2026).10WA Cares Fund. Exemptions
Business and Occupation Tax if You’re Self-Employed
Self-employed people and business owners don’t pay state income tax on profits, but they do pay the Business and Occupation (B&O) tax on gross receipts. The distinction matters. B&O is calculated on total revenue, not net profit, so business expenses like supplies, rent, and payroll are not deductible before the tax is figured.
For service businesses and anything not taxed under a more specific category, the rate depends on your gross income from the prior calendar year:11Washington State Legislature. Washington Code 82.04.290 – Tax on Service and Other Activities
- 1.5% if your prior-year gross was under $1,000,000
- 1.75% if your prior-year gross was between $1,000,000 and $5,000,000
- 2.1% if your prior-year gross was $5,000,000 or more
Retailing, wholesaling, and some specialized activities have their own, generally lower, rates under separate sections of the code.
A small business tax credit can wipe out B&O liability for very small operations. For service businesses, the maximum credit is $160 per month ($1,920 per year); for non-service businesses it is $55 per month ($660 per year). If your annual B&O tax falls at or under the credit maximum, you owe nothing. The credit phases out as liability grows and disappears once the tax reaches roughly double the maximum.12Washington State Legislature. Washington Code 82.04.4451 – Small Business Tax Credit
Who Counts as a Washington Resident
Washington does not use a day-count test. The Department of Revenue treats you as a resident if you are in the state on more than a temporary or transient basis, and you can be a resident of Washington and another state at the same time.13Washington Department of Revenue. Washington State Residency Definition
The Department presumes residency if you keep a home in Washington for personal use, are registered to vote here, hold a Washington driver’s license, use a Washington address on your federal or state tax returns, hold a Washington professional or business license, or receive Washington public assistance. You can rebut the presumption with evidence that you don’t plan to live in the state, but planning to move someday isn’t enough. If you live here now and intend to leave later, you’re still a resident now.
Residency matters most for the capital gains tax. A Washington resident who sells long-term capital assets above the $250,000 threshold owes the tax regardless of where the assets are located. Someone living in another state who meets none of the residency factors does not.
Why Sales Tax Fills the Gap
The reason Washington can skip an income tax on wages is that it leans on consumption taxes. The state sales tax rate is 6.5%, and local surcharges push combined rates to roughly 7.7% to 10.6% depending on where you shop.14Washington Department of Revenue. Local Sales and Use Tax Rate Table Groceries for home consumption are exempt. Prepared food, clothing, electronics, and most other purchases are taxed at the full combined rate. For households that spend most of what they earn, sales tax can end up costing more over a year than a moderate state income tax would.