Washington's 9.9% Millionaires Tax Is About to Pass. CPAs Have Two Years to Plan.

Washington State is about to pass a 9.9% income tax on people earning over $1 million a year. The governor just said he'll sign it.

If you've got high-earner clients in Washington, you need to have the conversation now.

What's Happening

Gov. Bob Ferguson announced Friday he'll sign the latest version of the "millionaires tax" proposed by legislative Democrats. The bill cleared the state Senate and is set for a House vote as early as Monday.

The Legislature adjourns next week. This is moving fast.

The Details

Here's what the bill does:

• 9.9% tax on individual earnings over $1 million (not joint, individual)

• Affects roughly 30,000 taxpayers statewide

• Projected revenue: $4 billion per year

• Collections begin in 2028 (tax year 2027, filed in 2028)

• Does NOT apply to home values or retirement savings

The revised bill also allocates:

• Revenue for free K-12 school breakfast and lunch for all children

• 5% of proceeds to child care and early learning programs

Ferguson praised the changes, saying they would "make the state more affordable for families" - ironic, since Washington families earning over $1M will now face the highest marginal state income tax rate west of New York.

Why This Is a Big Deal

Washington has no state income tax. This breaks that.

Yes, it only affects high earners. But once the infrastructure is in place to collect income tax, the threshold can drop. That's the fear among opponents - and it's not unfounded. California started its income tax with a top rate of 1% in 1935. It's now 13.3%.

What CPAs in Washington Need to Do

If you have clients earning over $1M in Washington, you need to:

1. Quantify the impact. Run the numbers. A client earning $2M will owe $99,000 per year starting in 2028. That's real money.

2. Review entity structure. The tax is on individual earnings - not corporate profits, not capital gains from home sales, not retirement withdrawals. But how your client structures their income matters. S-corp distributions, LLC pass-throughs, and W-2 wages all count.

3. Consider domicile planning. Washington residents earning over $1M may start looking at Nevada, Texas, or Florida - states with no income tax and lower cost of living (outside major metros). If a client is even thinking about moving, now is the time to plan before 2027.

4. Model retirement account conversions. The tax doesn't apply to retirement savings. If a client has large pre-tax IRA balances and is considering Roth conversions, the calculus just changed. Converting before 2027 might save them 9.9% on the conversion amount.

5. Plan charitable giving. Washington has no state income tax deduction today. But once the tax goes live, charitable contributions could offset state tax liability. If your client is charitably inclined, bunching donations into high-income years (2027 onward) could be strategic.

The Politics

Democrats control the Washington legislature. Ferguson is a Democrat. The bill has the votes.

Opponents argue this violates the state constitution's uniformity clause (all taxes must apply equally). Expect lawsuits. But the legislature is moving forward anyway.

The bill was negotiated between Ferguson and Democratic leaders after disagreements over how much of the tax revenue should be given back in tax breaks. The final version includes expanded tax breaks for some families and businesses - a compromise to get it across the finish line.

What This Means Long-Term

If this passes, Washington joins California, New York, and a handful of other states with income taxes above 9%.

For CPAs, it's a new compliance burden - but also a planning opportunity. High-earner clients will need advice on:

• Entity restructuring

• Domicile planning

• Timing of income recognition

• Retirement account strategies

• Charitable giving optimization

The clients who plan ahead will save six figures. The ones who don't will write big checks to Olympia starting in 2028.

The vote is expected Monday. If it passes, you've got two years to help clients prepare.