Washington state has seen exponential growth and popularity over the years. Home to vibrant cityscapes, sprawling hemlock forests, and the friendliest people, it’s no wonder why so many flock to the Evergreen State. Not only can residents revel in the glory of the Pacific Northwest, but they can also reap the many benefits of a 0% income tax rate. As one of the few states that does not impose income taxes, Washington’s laidback lifestyle is one that serves residents well.
While you won’t be legally obligated to pay state income taxes as a Washington resident, you will still be required to file a federal income tax return as a taxpaying American citizen. Looking to estimate your projected federal tax liability? Use our federal income tax calculator to get the most accurate figure.
Before we take a deep dive into the many provisions and stipulations of Washington state tax laws, let’s clear the gray area clouding the differences between state taxes and federal taxes. One of the most common mistakes taxpayers make around tax season is that there is no distinguishable difference between the two, but this assumption is incorrect.
State taxes are assessed and collected by each individual state’s independent government— meaning each state has the right to create their own functional tax code to prescribe to residents. This also means that state taxes vary greatly on a state-to-state basis. Washington, for example, forgoes having a state income tax at all whereas California imposes a 13.3% tax; the highest in the nation.
On the contrary, federal taxes are mandated and regulated by the federal government, and levied by the Internal Revenue Service (IRS). Federal taxes come with a standardized set of tax codes that apply to every American taxpayer regardless of state residency. It’s these very federal tax collections that go toward funding the Defense Department, Social Security, public education, Medicare, and more.
What does “state tax” mean in Washington?
Washington is one of the seven states that does not impose a state-level individual income tax. It is important to note, however, that the state of Washington does hold business filers responsible for several other state levies. As a single filer, you won’t have to worry about filing any returns to claim your personal income.
Use this guide to take a look at Washington’s tax liabilities as a whole and to file and plan for your annual tax return with best practices in mind.
Washington State Taxes: Quick Facts
Income tax: 0%
Sales tax: 6.5%
Property tax: 1% on average
Washington Tax Brackets
Many states that enforce state-level income taxes use a bracket system to assess taxpayer liability based on income levels. This, in theory, promotes a sense of fairness in that the more you earn, the higher percentage of income tax you return to your local government. For example, California has nine income tax brackets that directly correlate with different tax rates ranging from 1-12.3%.
Annual 2019 Tax Burden ($75,000/yr income)
Total Estimated Tax Burden
Remaining Income = $69,375
Because the state of Washington does not impose an income tax, no such bracket system exists.
Self-employment taxes in Washington
Freelancers, independent contractors, and all other self-employed workers, rest assured knowing that the income earned from your craft is exempt from any state-level taxation. Self-employment taxes in Washington are treated exactly the same as all other personal income in the state, and is therefore not subject to income tax.
It is important for self-employed taxpayers to know that you are required to pay self-employment (SE) taxes on a federal level. Federal SE taxes are required of those who:
Are members of a partnership that carries on a trade or business
Are sole proprietors, freelancers, or independent contractors
Are involved in a business for themselves
If you have earned over $400 from self-employed income and at one point in the year carried one of the listed titles, you will need to file Schedule SE with your Form 1040.
Washington Personal Income Tax
Washington does not impose an individual income tax. Washingtonians can attest to the state’s tax leniency being just one of the many reasons why Washington is one of the greatest states to settle down in. That is, in addition to the lively seasons, rousing recreational opportunities, and uber-friendly people, of course.
Even though Washington does not mandate any form of income taxes on a state level, Washington residents are still required to file and pay federal income taxes. Your federal tax liability will depend on a number of financial and household factors, so be sure to calculate your estimated bill before tax season rears its head.
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Capital gains tax only applies to the profits earned from the sale of a capital asset such as a stock investment, real estate, or a collectible item. Functioning similarly to personal income tax, capital gains tax can be imposed by both the federal and state governments.
As of 2019, Washington does not impose a capital gains tax. However, Governor Inslee has proposed a capital gains tax on the sale of stocks, bonds, and other assets in an effort to increase the tax liability of Washington’s wealthiest taxpayers.
According to the Washington Office of Financial Management, only 1.5% of households would be affected by this new tax. Only long-term capital gains income above certain threshold amounts would be subject to the new capital gains tax. These thresholds are $25,000 for single filers and $50,000 for married couples or joint-filing state-registered domestic partners.
Washington State Sales Tax
Although Washingtonians reap the many benefits of a 0% income tax rate, the state government collects a massive amount in sales tax. The standard state sales tax rate in Washington is 6.5%. Residents are also subject to paying an additional county sales tax on top of the standard sales tax rate, totalling to a minimum combined rate of 7%.
Washington County and City Sales Tax
There are 39 counties and 100 cities within the Evergreen State that impose their own additional sales tax rate in addition to the standatd 6.5% rate. These county and city rates range anywhere between 0.5% and 3.5%, meaning Washington taxpayers can expect to pay a total tax rate ranging between 7% and 10%.
Excise taxes are imposed on certain consumer products and services. Often referred to as “indirect taxes”, excise taxes are charged to the producer or vendor of the product rather than the consumer. However, as a consumer, you’re not entirely free of paying the added cost. The excise tax charged to the vendor is typically reflected in the sale price of the taxable product.
Instead of seeing the sales tax as a separate cost on your receipt like you would for sales taxes, excise taxes are factored into the price of the product. The manufacturer or merchant can then account for the costs when they file their quarterly business taxes.
Excise taxes are charged by both federal and state governments and apply to a vast array of goods and services including cell phone plans, vehicle registration, real estate sales, and more. Excise taxes imposed on products and activities that the government perceives as harmful to the consumer or the community are commonly referred to as “sin taxes”
Sin taxes vary from state to state, but the vast majority of states impose taxes on tobacco, alcohol, marijuana, and gambling.
Alcohol excise tax in Washington
Washington taxes alcoholic beverages by sub-divisional category; beer, wine, and liquor. This means that some libations are be taxed at a higher rate than others. You can expect to pay the following excise rates on your favorite alcoholic beverages:
Beer: $0.26 per gallon
Wine: $0.87 per gallon
Liquor: $14.27 per gallon
Tobacco excise tax in Washington
Washington is home to one of the highest cigarette taxes in the nation, ranking 6th highest out of the 50 states. As of 2019, cigarettes are taxed at $3.03 per 20-pack. If a pack contains more than 20 cigarettes, you can expect an increased excise tax rate, as well.
Gas tax in Washington
The state of Washington taxes motor fuel at $0.494 per gallon. Washington has some of the highest excise taxes on gas in the country, which is another way the state government makes up for the lack of personal income taxes. This extra 49 cent charge is reflected in the price you pay at the gas pump.
Real estate tax in Washington
Real estate excise tax (REET) is a tax on the sale of real estate property in the state of Washington. The real estate excise tax is typically charged to and paid by the seller of the property, however, in the case that the tax goes unpaid, the buyer may be liable for the remaining tax bill. REET also applies to transfers of controlling interests (50% or more) in entities that own property within Washington.
The state of Washington uses a graduated bracket structure to calculate the real estate excise tax due on the final sale price of a Washington property. Use this table to estimate how much REET to pay if you purchased or sold a home during the tax year.
$500,000 or less
$500,000.01 to 1,500,000
$1,500,000.01 to $3,000,000
$3,000,000 or more
Washington State Marijuana Tax
Recreational marijuana became legal in Washington in 2014, and has turned into an astoundingly lucrative avenue for government revenue. In Washington alone, excise tax revenue totaled nearly $65 million in 2015— by 2018, revenue generation had nearly doubled to 120.62 million dollars.
When first introduced, the state enforced a tiered system that taxed producers, processors and retailers at 25% each. Since then, the state has rolled out a flat rate excise tax instead. As of 2019, Washington state imposes a 37% excise tax to the sale of cannabis.
Washington State Property Tax
Before settling down on the coastline of the Puget Sound or in the heart of Seattle, you’ll want to consider the final purchase cost of your property with taxes included.
According to the Washington Department of Revenue, property tax is administered by local governments, though property tax rates in Washington average out to about 1%. Washington property tax rates vary by county, ranging between from 0.62% in San Juan County up to 1.21% in Pierce County.
While the state of Washington does not impose any inheritance taxes, it does impose estate taxes.
Estate taxes are levied on the net value of physical properties that have been inherited. Washington’s estate taxes range between 10% and 20% and function on a tiered bracket system that correlates the value of the home to the applicable tax rate.
Check out the table below to see what rate your inherited Washington property could be taxed at.
$0 to $1,000,000
$1,000,000 to $2,000,000
$2,000,000 to $3,000,000
$3,000,000 to $4,000,000
$4,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $9,000,000
$9,000,000 or more
Washington State Tax Credits
While tax credits are a great way to reduce your tax liability at a dollar-for-dollar rate, Washingtonians won’t need run through a long-running list of tax credits because there are no state-level income tax bills to reduce.
Tax credits are typically used as tools to encourage taxpayers to participate in state-driven initiatives. And since the payoff is a reduced tax bill, there is plenty of valuable reward to these state and federal level incentives. For example, in Massachusetts, taxpayers can claim a tax credit for upgrading their homes to a renewable energy source.
Washington State Tax Exemptions and Deductions
Washington does not offer any state tax deductions because the state does not levy any income taxes.
While tax deductions are similar to tax credits, deductions lower the individual taxable income rather than lowering the overall tax bill at a dollar-for-dollar rate. Even though Washington residents are not required to pay state income taxes, you are still subject to federal income taxes.
When tackling your federal tax return, be sure to go through the many credits and deductions offered and see which you may be eligible for. You might be surprised to find just how many federal savings you qualify for!
Discover more deductions -- speak to a tax pro today!
Washington does not typically distribute tax refunds since the state does not collect income taxes. However, there are certain circumstances in which individuals may request a refund for sales taxes paid. For example, if you believe you have overpaid sales tax, you may be eligible for a refund directly from the seller.
Individual filers, you’re in luck! The burden of paying state taxes is not a burden you’ll soon bear. Because the state of Washington does not have a personal income tax, you are completely exempt from filing a state-level tax return.
Do keep in mind that if you’re a business owner, you will be required to file business and occupation (B&O) and/or public utility tax in order to remain in compliance with the Washington Department of Revenue.
Fallen behind on state taxes? Get help with tax resolution today!
The state of Washington is home to the highest liquor excise tax in America. All liquor stores in the Evergreen State are state-owned and tax-regulated by the Distilled Spirits Council of the United States (DISCUS), not the state itself.
Enacted in August 2017, the State of Washington began imposing retail sales tax to the sale of bottled water.
55% of the revenue generated by cannabis taxes in Washington goes toward funding healthcare, and various marijuana education and prevention programs.
Summary of Federal Taxes
While Washington residents enjoy the many benefits of a 0% state income tax rate, be sure to stay on top of your federal tax filing obligations. Federal tax code is mandated across all 50 states, so as long as you’re an American citizen, you will be subject to the federal government’s tax regulations.
Fortunately, federal taxes are typically more comprehensive than individual state taxes since they apply to all taxpayers. There are, however, a few key figures that may impact your federal tax responsibilities. This includes your income, household status, and qualifying tax deductions— all important factors crucial to the final calculation of your tax bill.
Our federal income tax calculator is a valuable tool should you be curious to calculate your annual tax liability. For a more personable and personalized experience, speak with one of our tax professionals to get expert tax help today.
Call us to stress less and save more on your federal tax refund.
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