Washington is considering a new personal income tax starting January 1, 2028. Dubbed the “millionaires’ tax,” it actually hits small business owners harder than the large corporations supporters claim they’re targeting with this tax.

If you operate as an LLC, partnership, S-corporation, or sole proprietor, you need to pay attention to SB 6346/HB 2724.
‍
SIGN IN OPPOSED TO SB 6346 BY 12:30 PM ON FEBRUARY 6!

TELL YOUR LEGISLATORS YOU OPPOSE A STATE INCOME TAX

‍The tax rate of 9.9% would be applied to individuals/couples with Washington taxable income over $1 million (based on gross revenue and adjustments to income).

‍

PASS THROUGH INCOME IS TAXABLE

The bill includes details for how pass-through income, credits, and adjustments will be treated under the new tax.

TAXES RISK WITHOUT CREDIT OFFSETS OR AVERAGING

Construction is cyclical. A strong year, a one-time distribution, a partial sale, refinancing or a catch-up payment can push an owner over the $1M line, turning business success into a personal tax liability.

PENALIZES BUSINESS EXPANSION

Owners subject to the tax would need to pay estimated payments, potentially causing a cash-flow and budgeting issue. This could also penalize businesses that surpass their expectations for growth.

PENALIZES DUAL INCOME HOUSEHOLDS

Married/domestic partners are treated as a single taxpayer for purposes of the income tax: one combined $1,000,000 deduction total. There is no loophole for filing separately.

MULTI-STATE BUSINESSES FACE ADDED COMPLEXITY

If your company has out-of-state owners, works across state lines, or earns income both inside and outside Washington, the bill’s sourcing and apportionment rules determine what portion gets taxed. For many businesses, that’s where surprises and disputes can arise.

PENALTIES ADD UP FAST

Miss the filing requirements and the penalties are steep: 5% per month and up to 25%. There’s very little margin for error.

PASS THROUGH ENTITY TAX ELECTION

If a business opts to pay the tax at the entity level instead of the individual level, elections are annual and irrevocable. This could improve tax liability, but it completely depends on your ownership structure and overall tax situation.

REVENUE GOES TO THE GENERAL FUND

No protections for usage of tax revenue collections for 95% of the revenue collected.

CHARITABLE DEDUCTIONS CAPPED AT $50K PER HOUSEHOLD

Destroys the nonprofit sector in our state by limiting maximum charitable deduction to $50,000.

Read more

‍