Washington does not have a state income tax on wages or salaries

Washington is one of nine states with no tax on personal income. You will not owe state income tax on wages, salaries, tips, or most other forms of earned income. This applies whether you work in Washington or live there — the state straightforward does not collect income tax from individuals.

However, Washington does tax other sources of money. The state relies on sales tax, property tax, and business taxes instead. Understanding what Washington does tax matters because you may owe money in other forms, and you still file federal income tax like residents of every other state.

Key Takeaways

  • Washington has no state income tax on wages, salaries, or most earned income, so you keep more of your paycheck than residents of most other states.
  • Washington taxes capital gains — profits from selling stocks, bonds, or real estate held less than a year — at 7 percent on gains over $250,000.
  • The state has a 6.5 to 10.25 percent sales tax depending on your county, which applies to most purchases including groceries in some areas.
  • You still file federal income tax returns and owe federal tax, even though Washington collects no state income tax.
  • Property owners pay property tax to their county, and rates vary widely depending on location.

What Washington taxes instead of income

Washington makes up for the missing income tax with a sales tax that is among the highest in the country. The state rate is 6.5 percent, but most counties add local sales tax on top, bringing the total to between 8.1 and 10.25 percent depending on where you shop. This tax applies to most goods, including groceries in some counties, and to restaurant meals statewide.

The state also collects property tax from homeowners and landlords. Rates vary by county — some are around 0.7 percent of home value per year, others closer to 1 percent. If you rent, you do not pay property tax directly, but your landlord's costs may be reflected in your rent.

Washington introduced a capital gains tax in 2022 that applies to profits from selling stocks, bonds, and real estate. The tax is 7 percent on long-term capital gains over $250,000 in a single year. This does not affect most people who buy and hold a home or have a modest investment account, but it does affect those who sell significant investments or inherited property.

How the capital gains tax works

The capital gains tax only applies to profits, not the full sale price. If you buy a stock for $10,000 and sell it for $15,000, your gain is $5,000. The 7 percent tax applies only to that $5,000 gain. The tax also has a $250,000 annual threshold — you only owe tax on gains above that amount in a single calendar year.

The tax applies to long-term gains, meaning you held the investment for more than one year. Short-term gains (held one year or less) are not subject to this state tax, though they are taxed as ordinary income at the federal level. Real estate used as your primary residence is exempt — selling your home does not trigger the capital gains tax, even if you made a large profit.

If you sold investments or property in Washington during a year and your gains exceeded $250,000, you report this on your state tax return. The form is separate from your federal return, and the important date is the same as federal tax day.

Federal income tax still applies

Washington's lack of state income tax does not change your federal tax obligation. You must file a federal return and pay federal income tax based on your income, filing status, and deductions — the same as someone living in any other state. The federal tax brackets and rates are set by the Internal Revenue Service and explore nationwide.

Your federal return is filed with the IRS, not with Washington. The state does not see your federal return or use it to calculate state taxes, because Washington has no income tax to calculate. If you owe federal tax, you pay it to the federal government. If you owe state tax (such as capital gains tax), you pay that separately to Washington.

Self-employment and business income

If you are self-employed or own a business, you do not owe Washington state income tax on your business earnings. However, you do owe federal self-employment tax and federal income tax on that same income. You also may owe Washington's business and occupation tax (B&O tax) if your business meets certain thresholds.

The B&O tax is a gross receipts tax — it applies to the total money your business brings in, not your profit. The rate depends on your business type and ranges from 0.471 to 1.75 percent. Most very small businesses are exempt, but the threshold varies by industry. If you are unsure whether your business owes B&O tax, contact the Washington Department of Revenue.

How to file taxes in Washington

Because Washington has no income tax, there is no state income tax return to file. If you have capital gains over $250,000 in a year, you file a capital gains tax return with the state. Otherwise, your only tax filing obligation is your federal return with the IRS.

You file your federal return by April 15 each year (or the next business day if the 15th falls on a weekend). You can file online using IRS-approved software, by mail, or with the help of a tax professional. The IRS website (irs.gov) has free filing options for people below certain income thresholds.

If you owe capital gains tax, Washington's Department of Revenue has forms and instructions on its website. The important date is the same as the federal important date. You can file electronically or by mail.

Frequently Asked Questions

Do I pay state income tax if I work in Washington but live in another state?

No. Washington taxes only residents on income earned in the state. If you live elsewhere and work in Washington, you owe Washington nothing on that income. You owe income tax to your state of residence instead. Check with your home state's tax authority about their rules.

What if I moved to Washington from a state with income tax?

You owe income tax to your previous state only on income earned while you lived there. Once you move to Washington and establish residency, you owe no state income tax going forward. Your federal obligation does not change. If you moved mid-year, your previous state may require you to file a part-year return.

Is the capital gains tax the same as income tax?

No. Capital gains tax applies only to profits from selling investments or property, not to wages or salary. It is a separate tax with its own rate (7 percent) and threshold ($250,000 per year). Most people who work for a wage do not owe capital gains tax.

Do I need to file a Washington return if I have no capital gains?

No. If you have no capital gains over $250,000 and no B&O tax obligation, you do not file any Washington state return. Your only filing requirement is your federal return with the IRS.

How does Washington's sales tax compare to other states?

Washington's combined state and local sales tax (8.1 to 10.25 percent) is among the highest in the country. However, because there is no income tax, residents often pay less total tax than those in states with both income tax and sales tax. The trade-off depends on your income level and spending habits.