Washington’s upcoming income tax on high earners—which does not officially take effect until 2028—is already driving an intense political, legal, and legislative storm across the state. Although the tax is still years away from collecting its first dollar, a rapid succession of developments has thrust the policy into the center of public debate. A date has officially been set for oral arguments in a high-stakes constitutional challenge to the new statute. Meanwhile, state lawmakers have already floated proposals to aggressively expand the policy by lowering the taxation threshold to as low as $250,000, and voters are preparing to decide on a major November ballot measure, Initiative 645, which seeks to completely repeal the legislature’s decision and block the income tax from ever taking effect.

The road to the current legislative and legal standoff has been defined by strategic maneuvering and procedural choices. In early 2024, the Washington legislature overwhelmingly approved a filed ballot measure that stipulated neither the state nor any county, city, or local jurisdiction could tax any individual person on any form of personal income. Rather than allowing the measure to proceed to a public vote, lawmakers adopted it directly. This was primarily a procedural move: under Washington law, amending language adopted directly by a ballot measure requires a two-thirds legislative supermajority for the first two years. Had voters approved the measure in November 2024, lawmakers would have been barred from considering an income tax until the 2027 legislative session. By taking the initiative off the ballot and passing it themselves in early 2024, lawmakers started the legislative clock sooner. This maneuver allowed them to return during the 2026 session and do precisely what the original measure had sought to prohibit—adopt a statewide personal income tax.

In another strategic procedural step, state lawmakers attached an emergency clause to the high-earner income tax legislation. The clause asserted that the new tax, which will not take effect until 2028 with filings due in 2029, was "necessary for the support of the state government and its existing public institutions." This specific designation successfully shielded the measure from a provision in Washington law that ordinarily allows voters to petition for a referendum to review tax changes. With that traditional avenue of public pushback blocked, opponents of the income tax mobilized and filed their own initiative to repeal the law, successfully securing its placement on the statewide ballot.

The debate centers on a tax design that could result in staggering cumulative burdens for taxpayers in certain municipalities. Washington has historically operated without a broad-based personal income tax, and its state constitution has long been interpreted by legal scholars and courts as largely prohibiting income taxation—a historical precedent that forms the foundation of the pending litigation. Under the new law, some high-earning residents in Seattle could face the highest combined state and local top marginal rate in the entire country, reaching an estimated 18.037 percent when split across employers and employees. This aggregate figure combines the new 9.9 percent state income tax with the 5 percent Seattle Social Housing Tax, the 2.557 percent Seattle JumpStart Tax, and the 0.58 percent WA Cares tax.

The primary structure of the tax applies to individuals or married couples filing jointly with annual incomes exceeding $1 million. Consequently, the burden will fall heavily on small business owners and highly compensated technology sector workers. Very few wage earners earn straight salaries exceeding $1 million annually. Instead, incomes at that magnitude typically flow through three primary channels: capital gains and dividend income, pass-through business income, and restricted stock unit (RSU) vesting events, where years of accumulated corporate stock grants vest simultaneously, particularly during a company’s initial public offering. For instance, an individual might work at a technology startup for five years, and when the company eventually goes public, all five years of accumulated stock vest at once. This creates a single calendar year with taxable income well above $1 million, even though the worker’s average annualized income over that five-year span was significantly lower.

Pass-through businesses will also be directly impacted by the new levy. According to data from the US Small Business Administration, Washington is home to 672,472 small businesses, the vast majority of which operate as pass-through entities. These enterprises employ 1.4 million people, accounting for roughly 48.4 percent of all private-sector employees in the state. Imposing a 9.9 percent tax on the income of small business owners introduces one of the nation’s steepest personal income tax rates on business earnings within a state that already levies a heavy gross receipts tax—known as the Business and Occupation Tax—and subjects an unusually high proportion of business operational inputs to the retail sales tax.

Washington’s broader tax code has long skewed heavily toward business taxation, partly because the state lacks a broad-based individual income tax. However, unlike other states that also forgo an income tax, Washington does not possess a low-tax, limited-government fiscal ethos. This combination forces businesses to shoulder a disproportionate share of the overall tax burden. By enacting a high-rate income tax targeted strictly at high earners, critics argue that Washington has created the worst of both worlds for its small business community, restricting their capacity for capital reinvestment and business growth while undercutting long-term job creation.

The vulnerability to the tax extends beyond technology workers with vesting RSUs. Individuals who sell a small business they spent decades building, or homeowners generating substantial capital gains from the sale of residential property, could similarly find themselves unexpectedly pushed above the $1 million threshold in a single tax year.

Furthermore, tax analysts have highlighted several unusual structural design flaws within the legislation. The tax features a charitable deduction that is strictly capped at $50,000. Additionally, joint filers are subject to taxation on income above $1 million under the same terms as single filers, meaning two single earners making $600,000 each would face zero tax liability, whereas a married couple with the exact same combined income would be taxed. The law also lacks any safe harbor provisions for individuals who unexpectedly become subject to the tax when their income surges past the threshold in a given year. Under federal tax law and the statutes of most other states, underpayment penalties are waived if taxpayers remit at least 90 percent of their current year tax liability or 100 to 110 percent of their prior year liability through regular withholding or quarterly estimated payments. Washington’s new tax lacks any comparable safe harbor, leaving taxpayers who misjudge their liability or experience unexpected windfalls vulnerable to steep financial penalties.

Repealing the newly enacted tax via the ballot box remains a steep uphill battle. The challenge is compounded by contested ballot language warning voters that a successful repeal would require immediate cuts to public education funding, even though the tax is not yet operational and no state budget has incorporated those projected future revenues. A 2022 state law permits the attorney general to supply a fiscal impact statement for ballot measures, but critics have sharply questioned the wording attached to this initiative. Nevertheless, as lawmakers continue to discuss proposals to expand the tax to broader segments of the population before it even takes effect, many voters may ultimately choose a path familiar in Washington’s political history: rejecting the establishment of a state income tax at the ballot box.