Dear neighbors,  

The Washington State Legislature has taken a historic step forward in fixing our state’s nearly century-old tax code by passing the Millionaires Tax.  Approximately 60% of revenue collected from the tax will help fund schools, child care, health care, and other essential services.  Approximately 40% the Millionaires Tax revenue will go toward tax reductions (more on that below!) 

This tax will be paid by less than 1% of Washingtonians and will benefit 100% of the population.  The 9.9% tax applies only to annual earnings in excess of $1 million.  So, if a household makes $1,000,500 each year, only $500 will be taxed.  In this example, total taxes owed would be approximately $50.  There is a standard deduction of $1 million per household, regardless of filing status.  The $1 million deduction will be adjusted up over time for inflation. 

In addition to supporting our schools and healthcare, revenue will help:

  • Eliminate sales tax on all diapers, personal care products, and many over-the-counter drugs. 
  • Expand eligibility for the Working Families Tax Credit to 460,000 additional households, including young adults and seniors.  This will help lower-income families. 
  • Set aside 5% of annual tax proceeds for the Fair Start for Kids Act, which increases access to early learning programs, and provides resources to support child care and early learning providers. 
  • Provide free breakfast and lunch for all our public school children.  
  • This bill has the biggest tax break in state history for small businesses: 
    • Doubles the Business and Occupation (B&O) credit, meaning that businesses with gross receipts under $300,000 will not owe B&O and those businesses with gross receipts up to $600,000 will receive the small business tax credit starting in 2028. With this change, about 70% of all Washington businesses will be entirely exempt from the B&O tax!
    • Provides a carryforward deduction for 80% of net operating losses to reduce their tax liability. 
    • Taxable state income under the Millionaires Tax would include a business owner’s share of pass-through business income, the same way the federal tax code is structured.  This policy is not unique to Washington state. 
    • Credit for B&O tax paid by the business will result in a dollar-for-dollar credit reducing taxes owed. 
    • The state will provide an option in which the business pays the tax rather than the owner, which would allow these businesses to claim a federal deduction, reducing their federal tax liability, and business owners will receive a credit for tax paid on their share of pass-through business income.

Importantly, the Millionaires Tax provides a tax credit for the capital gains paid by some people.  Sales of real estate are specifically exempted from the Millionaires Tax, just as they are from the Washington capital gains tax. The tax would not apply to the equity or appraised value of a home.  Income related to sales and exchanges of long-term capital assets exempt from Washington capital gains tax are also exempt from income tax under this act. 

Once implemented, Washington will join forty-one other states that tax individual earnings over $1 million per year.  

The Millionaires Tax will take effect on Jan. 1, 2028, so the first tax returns and payments for 2028 taxable income will be due in April 2029.  

Will voters get a say on the tax?  

This bill is necessary for state government to function in a way people expect, by funding things like public education, health care, higher education and other essential government services. The state constitution specifically says that those measures in “support of the state government and its existing public institutions” are not subject to referendum.  People will still be able to gather signatures to put an initiative on the ballot to repeal the policy, and we expect people will get to weigh in on the policy at the ballot box. 

The 2026 legislative session is scheduled to end Thursday.  Please continue reaching out to my office with questions or feedback.  

Sincerely, 

Manka Dhingra
Senator, 45th Legislative District
Deputy Majority Leader