The Washington State Legislature has approved a new income tax law that imposes a 9.9% rate on incomes exceeding one million dollars annually, after it was endorsed by both the House and Senate, with the governor expected to sign it soon.
The text of the legislation indicates that the one-million-dollar threshold applies equally to individuals, couples, and partners in cohabiting relationships. This means that a couple earning $600,000 each will be taxed on their total income of $1.2 million. Legal experts have criticized the tax, calling it the largest 'marriage penalty' seen across U.S. states.
Joe Wallin, an attorney who advises businesses and tech founders in Washington, stated that the law offers the same million-dollar exemption whether you are single or married, jokingly adding that the legislation should be called a 'half-million tax' considering its impact on couples.
Marriage penalties are relatively common in federal and state tax laws, but what stands out about Washington's proposal is the size of the tax discrepancy. Data from the Tax Foundation shows that some high-tax states like California and New York impose minor increases for couples in specific brackets; in Washington, however, the discrepancy could reach 9.9%.
For instance, New York doubles the income thresholds for tax brackets up to a rate of 9.65% for married couples filing jointly, but keeps the millionaire tax thresholds uniform for both singles and married individuals. California also applies doubled thresholds except for a 1% mental health services tax that applies to incomes over a million dollars for both singles and married taxpayers.
Jared Walczak, a specialist at the Tax Foundation, noted that marriage penalties in New York and California remain relatively limited, but pointed out that the difference in Washington could be substantial; two individuals earning one million dollars each would not owe tax if they remained single, but if they married, they could owe around $99,000.
Democratic lawmakers and state leaders responded to concerns by stating that the new tax structure followed a similar deduction model for capital gains tax approved by voters in 2021, according to Senator Noel Frame, who leads financial affairs for Democrats in the Senate. She asserted that standardizing the exemption simplifies tax administration for the revenue department and eases compliance for taxpayers.
However, analysts warn that a state reliant on skilled labor and high-wage earners in companies like Amazon and Microsoft may see an impact on many dual-income families. Brian Hewitt, a hedge fund manager in Washington and founder of a conservative political action committee opposing the tax, criticized officials for downplaying the number of people who would be affected by the law.
Wallin noted that some dual-income couples might even consider legal actions such as divorce for tax reasons, mentioning that the tax savings could cover divorce attorney fees.
The dispute over this tax comes against the backdrop of a broader movement within the Democratic Party to impose higher taxes on the wealthy in states like Rhode Island, New York, Virginia, and Michigan, while California is considering an initiative to impose a tax on the net wealth of billionaires. Washington State serves as a watchpoint to measure the impact of raising state taxes on the migration of the wealthy and capital.
Two of the state's most notable entrepreneurs—Amazon founder Jeff Bezos and Starbucks founder Howard Schultz—have already left the state for Florida, which has no income tax. Bezos announced his move to Miami in 2023 following the imposition of the new capital gains tax, selling off more than $9 billion worth of Amazon stock in 2024, saving him approximately $600 million in capital gains tax he would have owed had he remained a resident of Washington.
Schultz also stated that he moved from Seattle after 44 years, with his family office relocating to Miami while his philanthropic organization continues to operate in Seattle.
The details of the tax application and its ramifications on individuals and businesses remain a subject of discussion and communication in the state, with the expectation that the new tax law will become a point of national and regional attention.