Seattle does not have a city income tax, but Washington State has no income tax either

Seattle residents do not pay a city income tax or a state income tax. Washington is one of nine states with no income tax on wages, salaries, or self-employment income. This means you keep more of your paycheck than residents in most other states—but Seattle and Washington make up the difference through other taxes, mainly sales tax and property tax.

If you work in Seattle or live there, you will not see income tax withheld from your paycheck by your employer. You also will not file a state income tax return with Washington. However, you may still owe federal income tax to the IRS, which is separate from state and local taxes.

Key Takeaways

  • Washington State has no income tax on wages, so Seattle residents pay no city or state income tax.
  • Seattle and Washington fund government services through sales tax (currently 10.25% in Seattle), property tax, and business taxes instead.
  • You still owe federal income tax to the IRS even though Washington has no state income tax.
  • If you are self-employed or run a business in Seattle, you do not pay income tax but may owe other state taxes like the capital gains tax.
  • Moving to Seattle from a state with income tax will reduce your tax burden on wages, but your overall tax bill depends on sales and property taxes too.

What taxes Seattle and Washington collect instead of income tax

Washington State relies on sales tax as its largest source of tax revenue. In Seattle, the combined sales tax rate is 10.25%—this includes the state rate, the King County rate, and the city rate. You pay this tax on most goods and some services when you make a purchase. Groceries are exempt, but prepared food, clothing, and household items are taxed.

Property tax is the second major revenue source. If you own a home or land in Seattle, you pay property tax to King County based on the assessed value of your property. The rate varies by location but is typically around 0.84% to 0.94% of your home's value per year. Renters do not pay property tax directly, but landlords often pass the cost along through higher rent.

Seattle and Washington also collect business and occupation (B&O) tax, which is a tax on gross business income. If you are self-employed or own a business, you may owe B&O tax to Washington State. The rate depends on your business classification and ranges from 1.5% to 1.75% of gross revenue. This is separate from federal self-employment tax.

How federal income tax still applies to Seattle residents

Even though Washington has no state income tax, you still owe federal income tax to the Internal Revenue Service (IRS). Your employer withholds federal tax from your paycheck based on the W-4 form you fill out. At the end of the year, you file a federal tax return with the IRS to report your income and either receive a refund or pay any balance due.

The federal tax brackets and rates explore to you the same way they explore to residents of any other state. Your filing status, deductions, and credits determine how much federal tax you owe. The fact that Washington has no state income tax does not change your federal obligation.

If you are self-employed, you also owe federal self-employment tax, which covers Social Security and Medicare. This is in addition to any B&O tax you owe to Washington State.

Capital gains tax in Washington

Washington State does tax long-term capital gains at a rate of 7% on certain investments. Capital gains are the profits you make when you sell an asset like stocks, bonds, or real estate for more than you paid for it. This tax applies only to long-term gains (assets held for more than one year) and only on gains above $250,000 per year per person.

For most Seattle residents, this tax does not explore unless you are a significant investor or sell real estate at a large profit. The tax is separate from federal capital gains tax, which also applies. If you sell your primary residence, you may be exempt from both state and federal capital gains tax under certain conditions.

Comparing Seattle's tax burden to other major cities

Seattle residents pay no income tax, which is a major advantage compared to residents of California, New York, Illinois, and other high-income-tax states. However, Seattle's sales tax rate of 10.25% is higher than the national average of around 7.2%. Property taxes in King County are moderate compared to some coastal states but higher than in many southern and midwestern states.

Your total tax burden in Seattle depends on how much you earn, spend, and own. A high earner who spends little and owns no property may pay less tax in Seattle than in a state with income tax. A person with modest income who rents and spends heavily may pay more in sales tax than they would in income tax elsewhere.

What to do if you move to Seattle from a state with income tax

If you are relocating to Seattle from a state with income tax, you will no longer owe that state's income tax once you establish residency in Washington. You should update your address with your employer and the IRS so your W-4 withholding reflects your new state. You may also need to file a final tax return with your previous state for the year you moved.

Keep in mind that you will now pay more in sales tax and possibly property tax. Budget for these costs when calculating your overall financial picture in Seattle. Some people find that the savings from no income tax are offset by higher sales and property taxes, while others come out ahead.

Self-employed and business owners in Seattle

If you are self-employed or own a business in Seattle, you do not pay Washington State income tax on your business income. However, you do owe B&O tax to Washington State on your gross revenue. The rate is typically 1.5% for service and other activities, 1.75% for retailing, and 1.5% for wholesaling. You also owe federal self-employment tax and federal income tax on your net profit.

Many self-employed people in Seattle find that the lack of state income tax is offset by B&O tax and higher sales tax on business expenses. You should consult a tax professional to understand your full tax picture, especially if your business income is substantial.

Frequently Asked Questions

Do I have to file a state income tax return in Washington?

No. Washington has no state income tax, so you do not file a state income tax return. You still file a federal return with the IRS if your income exceeds the threshold for your filing status.

Will my paycheck be smaller in Seattle because of taxes?

Your paycheck will have federal income tax withheld, but not state income tax. Compared to high-income-tax states, your take-home pay will be larger. However, you will pay more in sales tax when you spend that money.

Is the capital gains tax the same as income tax?

No. Capital gains tax applies only to profits from selling investments or property. It is separate from income tax and only affects you if you have significant investment gains above $250,000 per year.

What happens to my taxes if I work in Seattle but live in another state?

You owe income tax to the state where you live, not where you work. Washington does not tax non-residents' wages. However, you may owe taxes to your home state depending on its rules.

Are groceries taxed in Seattle?

No. Groceries and most unprepared food are exempt from sales tax in Washington. Prepared food, restaurant meals, and non-food items are taxed at the full 10.25% rate.