Washington does not have a state income tax on wages or salaries

Washington is one of nine states with no tax on personal income. You do not pay state income tax on wages, salaries, tips, or most other forms of earned income. This applies whether you work in Washington or live there — the rule is based on where you live, not where you work.

However, Washington funds state services through other taxes. The state relies heavily on sales tax, property tax, and business taxes. Understanding what you do pay helps you plan your budget and know what forms you need to file.

Key Takeaways

  • Washington residents pay no state income tax on wages, salaries, or self-employment income from most sources.
  • Washington has a 6.5% state sales tax, plus local sales taxes that vary by county, making total sales tax between 6.5% and 10.25% depending on location.
  • Capital gains tax applies only to long-term gains on certain investments sold for more than $250,000 in a single year, at a 7% rate.
  • Property tax in Washington varies by county but averages around 0.84% to 0.94% of home value annually.
  • If you work in Washington but live in another state with income tax, you may owe tax to both states, and Washington will not give you a credit.

What Washington taxes instead of income

Sales tax is Washington's largest source of state revenue. The state sales tax rate is 6.5%, but most counties add a local sales tax on top of that. Your total sales tax depends on where you make the purchase. For example, King County (Seattle) has a combined rate of 10.25%, while some rural counties are closer to 7%. Every time you buy something taxable — groceries are exempt, but prepared food, clothing, and most goods are taxed — you pay this rate at checkout.

Property tax is the second major tax. If you own a home or land in Washington, your county assessor determines the assessed value and applies the local tax rate. Rates vary significantly by county. The statewide average is around 0.84% to 0.94% of assessed value per year, but some counties run higher or lower. You pay this tax annually, usually in two installments.

Business and occupation tax (B&O tax) applies to gross revenue from business activities. If you are self-employed or own a business, you may owe this tax to the state. The rate depends on the type of business — service and other activities are taxed at 1.5%, retailing at 0.471%, wholesaling at 0.484%, and manufacturing at 0.484%. You file this tax annually with the Washington Department of Revenue.

Capital gains tax in Washington

Washington has a capital gains tax, but it applies only to long-term gains on certain investments. The tax kicks in when you sell stocks, bonds, or other long-term capital assets for a profit of more than $250,000 in a single calendar year. The tax rate is 7% on the gains above that threshold.

This tax does not explore to gains under $250,000, to short-term gains (assets held less than one year), or to most retirement accounts like IRAs and 401(k)s. Real estate sales are also exempt. If you sell investment property for a large gain, you do not owe capital gains tax on it in Washington.

If you work in Washington but live elsewhere

If you live in a state that has income tax and work in Washington, you will owe income tax to your home state. Washington does not tax your income, but your state of residence does. You will file a tax return in your home state and report all income, including what you earned in Washington.

Some states offer a credit for taxes paid to other states, which can reduce what you owe. Washington offers no such credit because it has no income tax to credit. Check your home state's rules — many states that border Washington, like Oregon and Idaho, have reciprocal agreements or credits that may help.

Federal income tax still applies

The absence of state income tax does not affect federal income tax. You still file a federal return with the IRS and pay federal tax on your income. Washington residents use the same federal forms and rates as everyone else. The only difference is that you have one fewer state return to file.

If you are self-employed, you also owe federal self-employment tax (Social Security and Medicare), which is separate from income tax. Washington has no self-employment tax at the state level, but the federal obligation remains.

How to file taxes in Washington

Most Washington residents do not file a state income tax return because there is no state income tax. However, you may need to file other Washington tax forms depending on your situation.

If you own a business, you file a B&O tax return with the Washington Department of Revenue. The form is called the Combined Excise Tax Return (Form 458). If you sold long-term capital assets for more than $250,000 in gains, you report this on your federal return, and Washington will assess the state capital gains tax based on that federal information — you do not file a separate Washington form for this.

You still file your federal return with the IRS as usual. Use the same forms you would use in any state: Form 1040 for income, Schedule C if you are self-employed, Schedule D if you have capital gains, and so on.

Frequently Asked Questions

Do I have to file a state tax return in Washington?

No. Washington has no state income tax, so most residents do not file a state return. If you own a business, you file a B&O tax return. If you have capital gains over $250,000, Washington assesses tax based on your federal return — you do not file a separate state form for this.

What if I moved to Washington from another state?

Once you establish residency in Washington, you pay no state income tax on future income. If you moved mid-year, your old state may tax income earned before you left. File a part-year return in your old state showing only income earned while you lived there. Washington will not tax any of it.

Are retirement account withdrawals taxed in Washington?

No. Withdrawals from IRAs, 401(k)s, and other retirement accounts are not subject to Washington state income tax. However, they are subject to federal income tax. If you are retired and living in Washington, you owe federal tax on retirement income but no state tax.

Do I owe Washington tax if I work remotely for a company in another state?

No. If you live in Washington, you owe no state income tax regardless of where your employer is located. Your employer's state does not tax you either — only your state of residence does. Since Washington has no income tax, you owe nothing to Washington.

What is the capital gains tax threshold again?

Washington taxes long-term capital gains only when your total gains in a single year exceed $250,000. Only the amount above $250,000 is taxed, at 7%. Gains of $250,000 or less are not taxed. This applies to stocks, bonds, and similar investments — not real estate or retirement accounts.