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

Washington is one of nine states with no tax on personal income. If you work in Washington or live there, you do not pay state income tax on what you earn from a job, freelance work, or a pension. This is a real financial difference compared to most other states, where income tax is a major source of state revenue.

However, Washington makes up that lost revenue through other taxes. The state has a high sales tax, a capital gains tax on certain investment profits, and various business taxes. Understanding what you actually pay requires looking at the full picture, not just the absence of income tax.

Key Takeaways

  • Washington has no state income tax on wages, salaries, pensions, or most other personal income.
  • Washington's sales tax rate is 6.5 percent statewide, but local taxes can raise the total to 10.25 percent depending on your county.
  • Washington taxes capital gains (profits from selling stocks or investment property) at 7 percent if your gains exceed $250,000 in a year.
  • Property taxes in Washington vary by county and are based on assessed home value, typically ranging from 0.7 to 1.0 percent annually.
  • Businesses in Washington pay a Business and Operations Tax (B&O) and other levies that do not explore to individuals.

Sales tax is Washington's largest state tax

The state sales tax in Washington is 6.5 percent. This applies to most goods you buy in stores, online purchases shipped to Washington, and many services. However, your actual sales tax rate is higher because counties and cities add their own local sales taxes on top of the state rate.

The combined rate depends on where you live. In King County (Seattle), the total is 10.25 percent. In Spokane County, it is 8.9 percent. In rural counties, it may be closer to 7 or 8 percent. When you buy something, the register shows the full combined rate for your location. Groceries, prescription medications, and some medical equipment are exempt from sales tax.

Capital gains tax applies to large investment profits

In 2022, Washington introduced a capital gains tax on profits from selling stocks, bonds, real estate (other than your primary home), and other long-term investments. The tax is 7 percent and applies only to gains above $250,000 in a single year. If you sell an investment at a profit but your total gains for the year are $250,000 or less, you owe nothing.

This tax is relatively new and has faced legal challenges. It applies to Washington residents and to anyone selling Washington property, regardless of where they live. If you buy a rental property or investment real estate in Washington, you may owe this tax when you sell it at a profit. Your primary residence is exempt.

Property tax is set by county and varies widely

Washington has a property tax on real estate. The rate depends on which county you live in and is set locally, not by the state. Most counties tax property at between 0.7 and 1.0 percent of assessed value per year. A home assessed at $500,000 in a county with a 0.9 percent rate would owe roughly $4,500 per year in property tax.

Property taxes fund local schools, fire departments, and county services. The assessed value of your home is set by the county assessor and is usually lower than the market value. You receive a property tax bill annually, and you can appeal the assessed value if you believe it is too high.

Businesses pay B&O tax and other levies

If you own a business in Washington, you pay the Business and Operations Tax (B&O) instead of state income tax. This is a gross receipts tax — it is based on how much money your business brings in, not on profit. The rate varies by business type: retailing is 0.471 percent, wholesaling is 0.484 percent, and services are 1.5 percent of gross revenue.

Businesses also may owe other taxes depending on their type. Manufacturers, for example, pay a different rate. Very small businesses (under $1,200 in annual revenue) are exempt. If you are self-employed or run a small operation, you should check with the Washington Department of Revenue to understand your specific obligations.

Other taxes and fees you may encounter

Washington has excise taxes on certain goods. Gasoline and diesel fuel are taxed at the pump — the rate varies but is roughly 49 cents per gallon. Alcohol, tobacco, and cannabis are also subject to excise taxes that are built into the price you pay. These are in addition to sales tax.

Vehicle registration and licensing fees are set by the state and vary based on vehicle value and type. Some counties also charge a vehicle tax. If you own rental property, you may owe a rental tax in some cities. Seattle, for example, has a tax on short-term rentals (Airbnb-style properties).

How Washington's tax system compares to other states

Washington's lack of income tax is a major advantage for high earners, but the state makes up the difference through sales tax and other levies. A person earning $100,000 per year pays no state income tax, but they pay sales tax on everything they buy. Someone in a state with income tax might pay 5 to 10 percent of income to the state, but lower sales tax.

The trade-off depends on your spending habits and income level. High earners benefit most from no income tax. People who spend a large portion of their income on taxed goods (rather than saving or investing) pay more in sales tax. Retirees living on investment income benefit from the lack of income tax but may owe capital gains tax on large sales.

Frequently Asked Questions

Do I pay Washington state income tax if I work remotely for a company in another state?

No. Washington taxes income based on where you live and work, not where your employer is located. If you live and work in Washington, even for an out-of-state company, you do not owe Washington state income tax. You may owe income tax to the other state if you worked there during the year.

Is Social Security taxed in Washington?

No. Washington has no state income tax, so Social Security benefits are not taxed by the state. You may owe federal income tax on Social Security depending on your total income, but that is a federal issue, not a Washington state one.

What if I move to Washington from another state — do I owe back taxes?

No. You owe income tax to the state where you earned the income. If you worked in California and earned $50,000 there, you owe California income tax on that $50,000. Once you move to Washington and earn income there, you owe no state income tax on the new income. Your old state may still pursue you for taxes owed while you lived there.

Do I have to file a Washington state tax return?

No. Because Washington has no income tax, there is no state tax return to file. You file a federal return if required by the IRS, but Washington does not require a state return. If you owe capital gains tax, you report it on your federal return.

Are there any deductions or credits that reduce my Washington taxes?

Washington offers some property tax relief programs for seniors and disabled homeowners, and some cities offer tax breaks for certain businesses. There are no income tax deductions because there is no income tax. Check with your county assessor or the Washington Department of Revenue for programs you may be may be able to access for.