Key TCJA / OBBBA Changes for All Taxpayers (2026)

1. Income Tax Rates & Brackets — Permanent

For the 2026 tax year, the seven federal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

These rates are now permanent under the OBBBA.

The OBBBA provides an additional inflation adjustment for the 10% and 12% brackets, meaning all taxpayers will see slightly lower taxes regardless of income level.

Key thresholds (2026):

• Single filers: $201,775

Married filing jointly: $403,550  

• (Rate increases from 24% to 32% at these levels.)

2. Standard Deduction — Permanent & Increased

For tax year 2026:

• Married filing jointly: $32,200

• Single / Married filing separately: $16,100

• Head of household: $24,150

According to the Tax Foundation, only 14.2% of taxpayers will itemize in 2026 under the OBBBA, compared to 32% if the TCJA had expired.

3. SALT Deduction Cap — Temporarily Raised

The TCJA capped the State and Local Tax (SALT) deduction at $10,000.

The OBBBA raises this limit to $40,000 for 2026.

The cap and phase-out thresholds will increase by 1% per year through 2029, then revert permanently to $10,000 ($5,000 for married filing separately).

Washington State note: Since Washington has no state income tax, residents benefit mainly through property tax deductions.

4. Child Tax Credit (CTC) — Increased

• Maximum credit: $2,200 per qualifying child (starting 2025)

• Indexed to inflation beginning 2026

• Refundable portion: $1,700

• Phase-out thresholds:

  • Single MAGI: $200,000

  • Joint MAGI: $400,000

5. No Tax on Tips & Overtime — Temporary (2025–2028)

Deduction available for:

• Up to $25,000 of qualified tips

• Up to $12,500 of qualified overtime pay ($25,000 for joint filers)

Phase-out begins at:

• MAGI over $150,000 (single)

• MAGI over $300,000 (joint)

6. Estate & Gift Tax — Permanent & Increased

• Estate tax exemption:

  • $15 million per individual

  • $30 million per couple (indexed for inflation)

• Gift tax exclusion:

  • $19,000 per recipient

  • $190,400 for gifts to non‑citizen spouses

7. Alternative Minimum Tax (AMT) — Updated

• Single: $90,100

• Married filing jointly: $140,200

8. Retirement Account Contribution Limits — Increased

• 401(k) / 403(b): $24,500

• Traditional or Roth IRA: $7,500

• Catch‑up contributions for age 50+ also increased.

9. Pass‑Through Deduction (Section 199A / QBI) — Permanent

The 20% deduction for pass‑through businesses remains permanent.

Phase‑outs begin at:

• $201,775 (single)

• $403,500 (joint)

For ALL Washington Residents (General Taxpayers)

No State Income Tax — For Now

Washington has no broad traditional state income tax for most residents in 2026, so most taxpayers effectively pay 0% state tax on ordinary personal income. Employers do not withhold state income tax, and residents do not file a state return for wage income.

Social Security & Retirement Income

Social Security is not taxed in Washington state. Retirement account distributions are also exempt, protecting most retirees

Lottery Winnings

The state does not tax lottery winnings, but federal taxes may be due to the IRS. The state is required to withhold 24% of any winnings over $5,000 for the IRS, and 30% for nonresidents of the United States.

Property Tax

Washington has a statewide average property tax rate of 0.75%

Earned Income Tax Credit (EITC)

Washington residents who have lived in the state for more than 180 days, filed a federal return with a valid SSN or ITIN, and qualified for the federal Earned Income Tax Credit may also qualify for a state credit. The maximum state credit ranges from $300 to $1,200 depending on the number of qualifying children, adjusted for inflation, with a minimum credit of $50

For Higher-Income Residents (Investors & High Earners)

Capital Gains Tax (Currently in Effect)

Washington's capital gains tax is a standalone excise tax on long-term capital gains. The rates are 7% on long-term capital gains between the standard deduction and $1 million, and 9.9% on long-term capital gains exceeding $1 million. The standard deduction is $278,000 for 2025, indexed annually for inflation.

Capital gains include profits from the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets. Retirement income distributions remain fully exempt.

The "Millionaires' Tax" — Coming in 2028

Washington enacted a 9.9% income tax on household income above $1 million, effective January 1, 2028. Married couples share a single $1 million deduction. First payments are due July 1, 2029.

A constitutional challenge (Citizen Action Defense Fund v. State of Washington) was filed in April 2026. On May 14, 2026, the Washington Supreme Court rejected a referendum challenge, but a separate constitutional lawsuit is still ongoing and could stop the tax before it takes effect.

Planning window before 2028: Washington currently imposes no tax on Roth IRA conversions. Conversions completed in 2026 and 2027 avoid any Washington tax cost, while conversions in 2028 and beyond would likely carry an additional state burden if the income tax takes effect.

Estate Tax — Important for Families

Washington imposes its own estate tax on estates above approximately $2.193 million (indexed for inflation) — dramatically lower than the federal threshold of $13.61 million. 

Governor Ferguson signed Engrossed Senate Bill 6347 on March 24, 2026, reverting estate tax rates to pre-2025 levels and allowing the $3 million exclusion to be adjusted for inflation in the future.

Critical Warning — No Spousal Portability: Washington does not allow portability of the estate tax exemption between spouses, unlike federal law. If the first spouse leaves everything to the surviving spouse (which passes estate-tax-free via the marital deduction), the surviving spouse will then have only their own single exemption at death. Estate planning tools like a credit shelter trust (bypass trust / AB trust) are strongly recommended to preserve both spouses' exemptions.

For Washington Business Owners

Business & Occupation (B&O) Tax — Gross Receipts Tax

Washington's B&O tax is a gross receipts tax with no deduction for costs — a significant burden unique to Washington and a handful of other states.

Key 2026 rate changes:

• B&O tax rate for manufacturing, retailing, and wholesaling increases to 0.5% starting January 1, 2027.

• The B&O tax rate for services rose for businesses with gross receipts over $1 million, effective October 1, 2025. A surcharge on financial institutions went into effect at 1.5%.

• A 0.5% temporary surcharge applies to businesses with taxable income over $250 million, from January 1, 2026, through December 30, 2029. 

Sales Tax on Services — Partial Rollback

The 2025 expansion of Washington's retail sales tax to a broad range of services (ESSB 5814) is scheduled to be repealed beginning January 1, 2029, with the exception of advertising services, which will remain taxable. Businesses in affected service categories should plan accordingly.

Pass-Through Entity (PTE) Tax Election

SB 6346 allows partnerships, LLCs, and S-corporations to elect to pay the 9.9% income tax at the entity level, with owners receiving a credit for the tax paid. This can be beneficial for owners with income above the $1 million threshold.

Capital Gains — B&O Tax Credit

New in 2026 is a credit for B&O taxes paid on property that generates a capital gain, reducing double-taxation for business owners who sell assets.

Luxury & Aviation Tax

The 10% luxury tax on private and business aviation aircraft, which had been set to take effect on April 1, 2026, has been repealed. In its place, HB 2711 modifies aircraft-related taxes by increasing the State's aviation fuel tax.