Washington state enacted a 9.9% income tax on Monday, targeted at the state’s top earners who are bringing in more than $1 million per year.
Gov. Bob Ferguson signed the tax increase into law, which will go into effect starting in 2028, and will be used by the state to fund child care programs, free school meals, tax credits for working families and tax breaks for small businesses, The Wall Street Journal reported.
The new income tax comes almost a year after President Donald Trump’s “One Big Beautiful Bill” was passed, which permanently continued 2017 tax breaks that were set to expire at the end of 2025, furthering an unbalanced system, according to Ferguson.
While Washington’s residents in the bottom 20% of income pay 13.8% of their income in state and local taxes, the wealthiest pay a smaller percentage of their income.
“This disparity was made much worse by President Donald Trump’s massive tax cuts for the wealthy, paid for, by the way, with cuts to necessities like health care and food assistance that have tremendous harm to the people of Washington state,” Ferguson said.
Washington’s tax follows a similar tax of 4% in Massachusetts on incomes above $1 million, which raised revenue from $2.46 billion to $3 billion in 2025. Washington’s 9.9% tax is expected to raise $3 billion per year, Tacoma News Tribune reports.
Ferguson says the added revenue will open its Working Families Tax Credit to 460,000 families. The program offers as much as $1,300 to families below certain incomes. The added revenue is also slated to provide free breakfast and lunch, reduce taxes for small businesses and slash sales tax on products such as diapers and hygiene products.
A battle only beginning
But the “millionaires tax” won’t go unchallenged. Republicans caution a tax on the wealthy could lead some businesses and wealthy individuals to move to states with lower taxes, slowing investment and job creation.
Washington’s Republican House minority leader, Drew Stokesbary, affirmed this notion, saying the change is a betrayal of the people of Washington, as such a tax could decrease entrepreneurship in the state.
“This is a betrayal of the people of Washington and a direct attack on our state’s economic competitiveness,” Stokesbary said. “For generations, Washington’s lack of a state income tax has helped attract jobs, entrepreneurs and investment, all of which has led to growth and prosperity. Democrats just took a sledgehammer to that advantage.”
The state is home to giants like Amazon, which recently overtook Walmart as the highest ranking Fortune 500 company with $713.9 billion in revenue. Microsoft, Costco, Boeing and Starbucks are also Washington companies.
Another cause for concern is the tax opens the door to tax lower-income households down the road if future spending plans grow beyond the budget. By keeping the income tax out of the state altogether, Republicans claim low-income households will never face an added tax burden.
However, for now, officials claim only 0.5% of the population will be affected, according to the Tacoma News Tribune.
Is the tax constitutional?
Republicans claim the historic tax is unconstitutional as it challenges a nearly century-old precedent Washington’s Supreme Court set in Culliton v. Chase, a 5-4 decision ruling income is property and must be taxed evenly instead of at graduated rates. This ruling has long prevented an income tax in the state.
Led by former Attorney General Rob McKenna, lawsuits are being filed through the Citizen Action Defense Fund, aimed to stop the tax before it begins in 2028.
“Washington’s Constitution is clear, and the courts have been equally clear for nearly a century — income is property, and progressive income taxes are unconstitutional,” said McKenna. “If the state proceeds with the new income tax, it will create a direct conflict with binding precedent and the constitutional protections that safeguard taxpayers. We are preparing to challenge the tax in court.”
Washington’s last state income tax in 1932 only lasted for about a year, when the state’s Supreme Court ruled it unconstitutional.
If the new tax holds up, the state will face the fear of businesses leaving the state. Already, in a survey conducted by the Association of Washington Business, 44% of Washington business leaders are considering changing their state residencies to a different state, and another 17% are considering relocating entirely due to taxes and cost of living.
Kris Johnson, president of the AWB, is worried the tax will push some companies over the edge.
“Does (the tax) make it an easier place to do business?” he said to Yakima News. “No, I think it’s a real challenge for us.”
Washington currently sits as the 25th most tax-friendly state, with a total tax burden of 8.47%, according to WalletHub. The ranking will likely change once the state’s “millionaires tax” begins.