Washington State Increases Taxes
Washington State is navigating a significant fiscal challenge in 2025, with a projected $16 billion budget shortfall over the next four years.
In response, Governor Bob Ferguson has signed into law a comprehensive tax package aimed at addressing this deficit with many notable tax increases:
1. Capital Gain Excise Tax
The capital gain tax will now be two-tiered with 7% on gains up to $1 million and an additional 2.9% on gains above $1 million. The exemption still applies on the first $270,000 (2024 limit).
This is a tax that applies to the sale of investments and business interests but does not include real estate. This capital gain tax can be a big surprise for many retiring business owners.
2. Estate Tax
Washington has an estate tax that is levied when a deceased person’s assets transfer to their heirs. The state will finally increase the long frozen estate exclusion to $3 million and increases the actual tax rates substantially, especially on large estates with the top rate exceeding 35% on estates over $9 million.
3. Sales Tax
Washington is extending our sales tax to include services. We are used to paying sales tax on products we buy, but now it will be levied on certain services starting in October. This will mostly cover technology and digital services such as IT, website development, digital advertising and other services.
4. Gas Tax
Be prepared to pay more at the pump. Gasoline and Diesel taxes will increase by 6 cents per gallon starting in July.
5. Business and Occupation Taxes
Businesses earning over $5 million per year will have a higher B&O Tax. This will impact many small business owners.
6. Other Taxes
There are several miscellaneous taxes and fees to be aware of. If you enjoy hunting and fishing, be prepared to pay 38% more for your license.
The Discover Pass cost went up to $45.
Marriage license fees are increasing.
As a resident of Washington State, you should be aware of how these new taxes affect you and have a good financial plan to address them. These new taxes could help maintain essential public services and infrastructure, but the higher tax burden may also have long term negative impacts on businesses and our economy. Washington ranks #45 out of 50 states for tax competitiveness according to the Tax Foundation, and perhaps going lower after these new tax increases.
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