Washington has no state income tax on wages or salaries
Washington State does not tax income from wages, salaries, self-employment, or investment gains. This is one of nine states with no income tax at all. If you work in Washington or live there, you do not owe state income tax on your paycheck, and you will not file a state income tax return.
This does not mean Washington collects no state revenue. The state funds itself through sales tax, property tax, capital gains tax (on certain investment sales), and business taxes. But for most people, the absence of income tax is the defining feature of Washington's tax system.
Key Takeaways
- Washington State does not tax wages, salaries, self-employment income, or most investment income, so you will not file a state income tax return.
- Washington taxes capital gains at 7 percent on the sale of long-term investments worth over $250,000 per year, with some exceptions for retirement accounts and primary residences.
- Washington has a 10.25 percent statewide sales tax (varying by county), which is one of the highest in the nation and affects your after-tax spending.
- If you moved to Washington from a state with income tax, you do not owe back taxes to Washington, but you may still owe taxes to your former state for the year you left.
- Retirees with pensions, Social Security, and retirement account withdrawals owe no Washington State tax on those income sources.
How Washington's capital gains tax works
Washington does tax capital gains — the profit you make when you sell an investment for more than you paid for it. The tax applies only to long-term capital gains (assets held more than one year) and only when your total capital gains in a year exceed $250,000. The tax rate is 7 percent on gains above that threshold.
The $250,000 threshold is per person, per year. If you are married filing jointly, you and your spouse each have a separate $250,000 threshold. Gains below the threshold in any year are not taxed by Washington.
Some investments are exempt: gains on your primary residence, gains inside retirement accounts (401(k), IRA, Roth IRA), and certain agricultural land sales. If you sell stocks, mutual funds, or real estate investment property, the capital gains tax applies once you cross the threshold.
Sales tax is Washington's largest revenue source
Washington makes up for the lack of income tax with a high sales tax. The statewide rate is 6.5 percent, but most counties add a local sales tax on top of that. Combined rates typically range from 8.5 to 10.25 percent depending on where you shop. Some counties are higher; a few are lower.
Sales tax applies to most goods and some services. Groceries (unprepared food) are exempt, as are prescription medications. Prepared food, restaurant meals, and most services are taxed. This means your actual tax burden depends heavily on how much you spend rather than how much you earn.
For someone earning $100,000 in Washington, the lack of income tax saves roughly $9,200 per year compared to a state like California or New York. But that savings shrinks if you spend most of your income on taxable goods and services.
What happens if you move to or from Washington
If you move to Washington from another state, you do not owe Washington income tax retroactively. You owe tax only on income earned after you establish residency in Washington. Your former state may still claim you owe tax for the portion of the year you lived there before moving.
If you move away from Washington, you owe no Washington income tax on income earned after you leave, because Washington has no income tax. However, if you sell an investment property in Washington after you move, the capital gains tax may still explore if your gains exceed $250,000 in that year.
Establishing residency for tax purposes usually means obtaining a Washington driver's license, registering your vehicle there, or leasing or buying a home. If you work remotely for an out-of-state employer while living in Washington, you owe no Washington income tax — only the sales tax on what you buy.
Retirement income and Social Security are not taxed
Washington does not tax Social Security benefits, pension income, or withdrawals from traditional or Roth IRAs. If you are retired and living on a combination of Social Security, a pension, and retirement account withdrawals, you owe no Washington State income tax on any of those sources.
This makes Washington attractive to retirees, especially those with substantial pensions or large retirement accounts. You will still owe federal income tax on most of these sources (Social Security is partially taxable at the federal level, and traditional IRA withdrawals are fully taxable federally), but Washington adds nothing on top.
The one exception is the capital gains tax. If you sell investments as part of your retirement strategy and your gains exceed $250,000 in a year, you will owe Washington's 7 percent capital gains tax on the excess.
How to handle federal taxes while living in Washington
Living in Washington does not change your federal tax obligations. You still file a federal return each year if your income exceeds the federal threshold (which depends on your age and filing status). You still contribute to Social Security and Medicare through payroll taxes if you are employed.
The main difference is that you will not file a Washington State return. You will file only your federal return (Form 1040) and any required federal schedules. If you have self-employment income, you still file Schedule C and pay self-employment tax federally, but you owe no Washington State tax on that income.
If you have income from multiple states — for example, you worked in Oregon for part of the year and Washington for part of the year — you may need to file returns in both states. Oregon, for instance, taxes income earned within its borders even if you do not live there. Check the rules of any state where you earned income.
Comparing Washington's tax burden to other states
Washington's lack of income tax is offset by high sales tax and property tax. A person earning $75,000 and spending $50,000 per year on taxable goods will pay roughly $5,000 to $5,250 in sales tax, depending on county. That is a significant burden compared to states with lower sales tax but income tax.
States with no income tax tend to rely on consumption taxes, which hit lower-income households harder. A family earning $40,000 spends a larger percentage of their income on taxable goods than a family earning $200,000, so the sales tax burden is regressive.
For high earners with substantial investment income, Washington's lack of income tax and capital gains tax (below $250,000 per year) is a major advantage. For lower-income households, the high sales tax may offset that benefit.
Frequently Asked Questions
Do I have to file a Washington State tax return?
No. Washington has no income tax, so there is no state return to file. You file only your federal return if your income exceeds the federal threshold. If you have capital gains over $250,000 in a year, you report those on your federal return, and Washington's 7 percent capital gains tax is calculated based on that federal report.
Will I owe Washington tax if I work remotely for an out-of-state company?
No. Washington taxes income based on where it is earned or where you live. If you live and work in Washington (even remotely), you owe no Washington income tax. You will owe sales tax on purchases you make in Washington, but not income tax.
What if I sell my house — do I owe capital gains tax?
No. Sales of your primary residence are exempt from Washington's capital gains tax, even if you make a large profit. The exemption applies to one primary residence per person. If you sell investment property or a second home, capital gains tax may explore if your total gains exceed $250,000 in that year.
Does Washington tax retirement account withdrawals?
No. Withdrawals from IRAs, 401(k)s, and other retirement accounts are not taxed by Washington State. You will owe federal income tax on most retirement withdrawals, but Washington adds no state tax. This applies to both traditional and Roth accounts.
If I move out of Washington, do I owe back taxes?
No. Washington has no income tax, so there are no back taxes owed to Washington. However, your former state may claim you owe tax for the portion of the year you lived there before moving. Check with that state's tax authority about your departure date and any filing requirements.