Washington State’s New Income Tax: Biggest ‘Marriage Penalty’ in US?
Washington state’s newly approved income tax on high earners includes what tax experts are calling the largest “marriage penalty” in the nation, potentially subjecting couples with combined incomes of $1 million or more to significantly higher tax burdens than single individuals earning the same amount. The tax, a 9.9% levy on income exceeding $1 million annually, passed both houses of the state legislature and is expected to be signed into law by the governor, marking a historic shift for Washington, one of only nine states without a state income tax.
While proponents label the measure a “millionaire’s tax,” the structure of the law means that couples earning $600,000 each – a combined $1.2 million – will be subject to the full 9.9% tax, a consequence not faced by single individuals with $1 million in income. “According to the statute, it doesn’t matter if you’re single or married, the exemption is $1 million,” explained Joe Wallin, an attorney advising companies and tech founders in Washington, as reported by CNBC. “It should be called the half-millionaire tax.”
Marriage penalties exist in some form in many state and federal tax codes, but Washington’s stands out due to its magnitude. Most states employ different income thresholds for tax brackets based on filing status, typically doubling the individual threshold for married couples. In contrast, Washington applies the $1 million threshold uniformly, regardless of marital status. According to Jared Walczak, a senior fellow at the Tax Foundation, Fresh York and California have marriage penalties, but they are comparatively small, amounting to a 1% tax rate difference in California and 0.65% in New York.
Walczak illustrated the potential impact in Washington, stating that two single filers each earning $1 million would owe no tax under the new law. However, if they were to marry and maintain the same individual incomes, their combined income would trigger a tax liability of approximately $99,000. “Washington’s marriage penalty will be the largest by far,” he said.
State Senator Noel Frame, who leads fiscal policy for the state Senate Democrats, defended the structure, noting its consistency with the state’s existing capital gains excise tax, passed by voters in 2021. “As we work to build the two separate tax structures work together, having consistency in the deduction helps with both administration of the tax by our Department of Revenue and simplicity for taxpayers,” Frame said in a statement. She also pointed out that many high-earning couples would not be significantly impacted, even with combined incomes exceeding $1 million.
However, analysts suggest the tax could disproportionately affect dual-income families in Washington’s tech-driven economy, home to major companies like Amazon and Microsoft. Brian Heywood, founder of the conservative political action committee Let’s Go Washington, criticized the law’s framing, arguing that it targets a broader range of earners than initially presented. “There’s this idea that, ‘We’re just taxing rich dudes with yachts,’” Heywood said. “They’ve been less than honest with who they’re going after and what the numbers are.”
The potential financial implications have even prompted discussion of unconventional strategies. Wallin joked that some couples might consider legal separation solely for tax purposes, despite remaining committed to their relationship. “The tax savings alone would more than pay the costs of a divorce lawyer,” he said.
Washington’s new tax is part of a broader trend among Democratic lawmakers nationwide seeking to increase taxes on high earners to address income inequality and offset federal funding cuts. California is currently considering a ballot initiative to establish a wealth tax on the state’s wealthiest residents. The outcome in Washington is expected to be closely watched as a test case for the potential impact of higher state taxes on wealth migration. Jeff Bezos, founder of Amazon, and Howard Schultz, former CEO of Starbucks, have both recently relocated to Florida, which has no state income tax, after Washington’s capital gains tax took effect. Schultz recently announced the relocation of his family office to Miami, though his foundation will remain in Seattle, expressing hope that Washington will “remain a place for business and entrepreneurship to thrive.”