If you live in Washington State and earn over $1 million per year, you’ve likely heard of the new millionaires’ tax. Senate Bill 6346 was recently passed by lawmakers, introduced a new 9.9% tax on income above $1 million for Washington residents.
Washington has long been known as a state without any income tax, so this is a notable shift, especially for high earning households.
Let’s walk through what this actually means, when it starts, and where planning may come into play.
What does the new law do?
At its core, Senate Bill 6346 creates a new tax bracket for high earners:
- Applies to income above $1,000,000
- 9.9% tax rate
- Applies to Washington sourced income
This is a marginal tax, meaning only the income above $1 million is subject to the 9.9% rate.
That said, for households consistently earning well above $1 million, a meaningful portion of income may fall into this bracket each year.
Why this matters
If you earn over $1 million, this effectively introduces a new state tax on top of your federal taxes. From a planning perspective, it also changes the conversation from “how do we manage taxes this year” to “how do we structure income over time in a way that is as efficient as possible?”
Where planning comes into play
We are not here to debate the policy itself, but for high earners, this does create a few areas where planning becomes more valuable.
1. Managing taxable income levels
If your income is consistently close to or above $1 million, there may be opportunities to manage how much shows up as taxable income each year.
This is less about avoiding taxes entirely and more about being intentional.
Questions we often look to explore:
- Can a portion of income be deferred?
- Are there ways to smooth income across multiple years?
- Are there strategies that meaningfully reduce taxable income?
2. Deferred compensation becomes more valuable
For those with access to deferred compensation plans (DCP), this becomes a much more important lever.
At companies like Microsoft, eligible employees can defer a portion of salary and bonus into future years.
When used thoughtfully, this can:
- Reduce current taxable income
- Potentially keep more income below the $1 million threshold
- Shift income into years where overall taxes may be lower
This is not a new strategy, but the stakes are higher now for high earners.
3. Thoughtfulness around RSU planning matters even more
For many tech employees, RSUs are the largest driver of income. While you can’t control vest schedules, you can control how RSUs fit into your broader plan.
For households consistently above $1 million, the focus often shifts to:
- Having a really good idea about how much RSU income you can expect each year
- Integrating RSUs into cashflow planning, allowing you to save more in your 401(k) and if available, DCP
- Being aware of RSU timing that may spike already high income
4. Thinking in multiple years
One of the biggest shifts with a tax like this is the need to think beyond a single year.
If your income is consistently above $1 million, the goal is not to optimize one tax return, but to instead optimize a multi-year plan.
This includes:
- Mapping out expected income over the next several years
- Identifying years where income may be higher or lower
- If possible, deciding when to accelerate or defer income
Over time, these decisions can meaningfully impact total taxes paid.
A quick reality check
Not everyone will have flexibility.
If your income is well above $1 million and largely fixed, this tax may simply be part of the landscape going forward, but for those with some level of control, thoughtful planning can help reduce how much income is exposed to the 9.9% rate over time.
Final Thoughts
This change adds a new layer of complexity to the Washington State tax code, particularly for high earning households.
If your income is consistently over $1 million, thoughtful planning between now and 2028 may help you avoid some of the hit in the years to come and beyond.
If you want to walk through how this might impact your situation, especially around deferred compensation or other planning strategies, we’re happy to help you think it through.