Washington is making a meaningful change to its tax landscape. With the passage of SB 6346, the state has adopted a new tax aimed at high income individuals, including many business owners and C‑suite leaders.
Although the new millionaires’ tax does not take effect until January 1, 2028, the implications start much earlier than most people expect. This is not a tax you troubleshoot in the year it begins. For business leadership, decisions made well in advance around income, structure, and residency will largely determine how exposed you are once the law goes live.
Below is what matters and how to approach it.
A Quick Overview of the New Millionaires’ Tax
SB 6346 introduces a 9.90 percent tax on Washington taxable income for individuals with annual adjusted gross income of $1,000,000 or more. The tax applies at the individual level and is separate from Washington’s existing business taxes.
Revenue from the tax is intended to support public priorities, including:
- K‑12 education
- Health care access
- The Working Families Tax Credit
- Public defense funding
State lawmakers have framed this tax as part of a broader effort to rebalance Washington’s tax system and reduce its reliance on regressive taxes. For business owners and executives, the takeaway is practical rather than political. If your income approaches or crosses seven figures, this tax needs to be part of your forward planning, especially if income fluctuates year to year.
Who Is Most Exposed and Why Structure Matters
While the tax targets high income individuals broadly, it is most likely to affect those with variable or event‑driven income as well. This often includes:
- Owners of closely held family businesses
- Founders planning a transition or exit
- Individuals with large bonuses or equity awards
- Individuals with multi‑state income
Because the tax hinges on how income is sourced and characterized, not just how much is earned, business structure and compensation design take on added importance. Income that feels reasonable in a lower year can push someone well above the threshold in a strong year. Reviewing how your income flows now can reveal whether your current structure still makes sense heading into 2028.
How Washington Will Calculate Taxable Income
SB 6346 creates new sections of the Washington tax code that spell out how taxable income is calculated. These provisions are technical and they matter.
The law addresses issues such as:
- Carryover amounts for certain income
- Deductions tied to U.S. government obligations
- Treatment of charitable contributions
- How retirement benefits are handled
- Credits intended to reduce double taxation
The key point for business leadership and advisors is that Washington taxable income will not always mirror federal taxable income. Assuming the two align could lead to unexpected exposure. Running projections under Washington’s rules sooner rather than later gives leaders time to adjust while options are still available.
Residency, Multi‑State Income, and Compliance Expectations
The legislation also clarifies how the tax applies to:
- Washington residents
- Part‑year residents
- Non‑residents with Washington‑sourced income
This is particularly relevant for business owners who split time across states or operate nationally. SB 6346 also modernizes compliance expectations. Electronic filing and payment are required, penalties for late payment are clearly outlined, and enforcement mechanisms are more clearly defined than before.
For high income earners, residency positions and sourcing documentation are no longer areas to loosely manage. Addressing them proactively now reduces the likelihood of scrutiny later.
Why Waiting Until 2027 Limits Your Options
A common reaction to the millionaires’ tax is to treat it as a future issue. That instinct is understandable and risky. The most effective strategies typically involve decisions that must be made well in advance, including:
- Income timing and recognition
- Equity vesting and compensation structures
- Entity and ownership reviews
- Residency planning
Once income is earned or equity vests, planning options narrow quickly. Treating the years leading up to 2028 as planning years, not placeholder years, allows business leaders to stay in control rather than reacting under pressure.
Practical Planning for Business Owners, CFOs & HR
Although the tax does not take effect until January 1, 2028, the years between now and then are critical. This is the period to pressure test assumptions and coordinate across advisors.
Advance planning often includes:
- Modeling income under Washington’s taxable income rules
- Reviewing entity and ownership structures
- Evaluating available credits and deductions
- Aligning compliance systems with the new framework
Early planning does not eliminate tax exposure, but it preserves flexibility and reduces surprises. For businesses in growth, transition, or succession phases, that flexibility can be invaluable.
What This Signals for Washington’s Business Community
Zooming out, SB 6346 reflects a broader trend in Washington’s approach to taxation. The state is taking a more active stance toward high income earners, and further changes should not come as a surprise.
Businesses that adapt well will be those that integrate tax strategy into broader business and compensation planning, rather than treating tax as a once‑a‑year compliance exercise. The goal is not just accuracy, but foresight.
Ready to Get Ahead of 2028?
If your income is approaching seven figures, or if your business is entering a growth, transition, or exit phase, now is the moment to step back and assess how this new tax could affect your strategy.
Equinox Business Law Group works with business leadership to evaluate tax exposure, entity structures, and long‑term planning before change becomes unavoidable.
If you would like to discuss how Washington’s new millionaires’ tax may impact your business or personal planning, we invite you to schedule a conversation with our team.
