Washington has no state income tax on wages, salaries, or most other income

Washington State does not tax wages, salaries, interest, dividends, or capital gains the way most other states do. There is no state income tax form to file, no state income tax withheld from your paycheck, and no annual return due to the Washington Department of Revenue for ordinary income.

This makes Washington one of nine states without a broad income tax. However, Washington funds state government through other taxes — primarily a sales tax, property tax, and business-related taxes. Understanding what you do and do not owe in Washington requires knowing which taxes replace income tax, and which income sources Washington has chosen to tax despite the lack of a general income tax.

Key Takeaways

  • Washington State collects no income tax on wages, salaries, interest, or most capital gains, and you do not file a state income tax return for these sources.
  • Washington funds state services through sales tax (currently 6.5% statewide, higher in many counties), property tax, and a capital gains tax on certain investment profits.
  • A capital gains tax of 7% applies to long-term capital gains over $250,000 in a single year, though this applies to relatively few taxpayers.
  • You still owe federal income tax to the IRS even though Washington has no state income tax, and you must file a federal return if your income exceeds the federal threshold.
  • Some Washington counties and cities add local sales taxes on top of the state rate, so your actual sales tax can range from 8.5% to over 10% depending on location.

What Washington taxes instead of income

Without income tax, Washington relies on a sales tax as its largest revenue source. The state sales tax rate is 6.5%, but most counties and cities add local sales taxes on top of that. Depending on where you live and shop in Washington, your total sales tax can range from 8.5% to over 10%. This means you pay tax every time you buy most goods and services, rather than once a year based on your income.

Washington also collects property tax, which funds schools and local government. Property tax rates vary by county and are set by local assessors and voters, not the state. A homeowner in one county might pay a different effective rate than a homeowner with the same home value in another county.

The state also taxes businesses through a Business and Operations Tax (B&O), which is a gross receipts tax on certain business activities. This is separate from federal income tax and applies to businesses operating in Washington, regardless of where they are incorporated.

The capital gains tax: the one income-like tax Washington does collect

In 2022, Washington introduced a capital gains tax of 7% on certain investment profits. This is the closest Washington comes to taxing income, but it applies only to long-term capital gains — profits from selling stocks, bonds, real estate, or other investments you held for more than one year — and only when those gains exceed $250,000 in a single calendar year.

For most Washington residents, this tax does not explore. You would need to sell investments worth significantly more than $250,000 in profit in one year to owe it. If you do owe capital gains tax, you report it on your federal return and also file a Washington Form 706-WA with the Department of Revenue. The tax is separate from federal capital gains tax, so you may owe both.

Capital gains from the sale of your primary residence are excluded from this tax, as are gains from certain retirement accounts and other specified sources. The Department of Revenue publishes guidance on which gains count toward the $250,000 threshold.

Federal income tax still applies in Washington

The absence of state income tax does not mean you owe nothing to the federal government. You must still file a federal income tax return with the IRS if your income exceeds the federal threshold for your filing status. In 2024, that threshold is $14,600 for a single filer under 65, though it varies by age and filing status.

Federal income tax is withheld from most paychecks at a rate that depends on your W-4 form and your income level. You file Form 1040 with the IRS each year, and Washington State does not receive any of that money or any copy of your federal return. The two tax systems are completely separate.

How Washington's tax system affects your take-home pay

Because Washington has no income tax, your paycheck is not reduced by state income tax withholding. This means more of your gross pay reaches your bank account compared to states that withhold state income tax. However, you pay sales tax on purchases, which effectively taxes your spending rather than your earnings.

The overall tax burden depends on how much you earn and how much you spend. A high earner who saves most of their income may pay less total tax in Washington than in a state with income tax. A lower-income earner who spends most of their money may pay a higher percentage of their income in sales tax than they would in state income tax elsewhere. There is no universal answer to which system is "cheaper" — it depends on your personal situation.

Self-employment and business income in Washington

If you are self-employed or own a business in Washington, you do not owe state income tax on your business profits. However, you must pay federal self-employment tax to the IRS, which covers Social Security and Medicare. You also owe the B&O tax if your business is based in Washington and meets the threshold for your business classification.

The B&O tax is calculated on your gross receipts — the total revenue your business brings in — not on your profit. Different business activities have different tax rates, ranging from 0.471% to 1.75% depending on whether you are classified as a service and other activities business, retailing, wholesaling, or manufacturing. You file a B&O tax return with the Department of Revenue, separate from your federal business tax return.

Frequently Asked Questions

Do I need to file a Washington State income tax return?

No. Washington has no state income tax, so there is no state income tax return to file. You file only your federal return with the IRS. The only exception is if you owe capital gains tax on investment profits over $250,000 in a year, in which case you file Form 706-WA with the Washington Department of Revenue.

Will my paycheck be different in Washington than in other states?

Yes, your take-home pay will be higher in Washington because no state income tax is withheld. However, you pay more in sales tax when you spend money. Over time, the difference depends on how much you earn and spend, not just where you live.

What if I moved to Washington from a state with income tax?

You do not owe Washington State income tax on income earned in Washington, even if you just moved there. You may still owe income tax to your previous state on income earned there before you moved, depending on that state's rules. Contact that state's tax department for details on your final return.

Are retirement account withdrawals taxed in Washington?

Withdrawals from traditional IRAs, 401(k)s, and similar accounts are not taxed by Washington State. They are taxed by the federal government as ordinary income. Withdrawals from Roth accounts are not taxed federally or by Washington.

Do I owe capital gains tax on the sale of my home?

No. The sale of your primary residence is excluded from Washington's capital gains tax, even if you make a large profit. You also do not owe federal capital gains tax on the sale of your primary residence if your gain is under $250,000 (or $500,000 if married filing jointly).