Washington State does not tax dividend income today. There is no personal income tax, and the state’s 7% capital gains excise tax applies only when you sell an asset, not to dividends paid while you hold it. That will change on a narrow slice of taxpayers starting January 1, 2028: Senate Bill 6346, signed by Governor Ferguson in 2026, creates a 9.9% tax on income above $1 million per year, and dividends are part of that tax base. Below that threshold, and until 2028, your dividends stay untouched at the state level. Federal tax still applies, and dividends can quietly affect your Business and Occupation tax, your estate exposure, and your eligibility for the Working Families Tax Credit.
Why There’s No State Tax on Dividends Today
Washington’s Constitution requires that taxes on property be uniform within a class and, combined with other property taxes, not exceed one percent of value.1Washington State Legislature. Constitution of the State of Washington – Article VII, Revenue and Taxation In 1933, the state Supreme Court held in Culliton v. Chase that income is a form of property. Because income is property, a graduated income tax runs into that uniformity rule and the one-percent cap.2Washington State Department of Revenue. Chapter 5: Principal Constraints Culliton has never been overruled, and no statute currently authorizes the Department of Revenue to collect tax on individual income. Dividends you receive as a Washington resident trigger no state return and no state payment.
The Capital Gains Tax Doesn’t Reach Dividends
Washington’s 7% capital gains excise tax under RCW 82.87 sometimes causes confusion, but it is imposed on the “sale or exchange” of long-term capital assets. It applies only when you actually sell an investment held more than a year and realize a profit.3Washington State Legislature. Washington State Code 82.87 – Capital Gains Tax The statutory definitions in RCW 82.87.020 are built around “adjusted capital gain” and “federal net long-term capital gain.” The word “dividends” does not appear in the statute.4Washington State Legislature. Washington State Code 82.87.020 – Definitions
The tax also carries a per-person exemption that indexes annually. For the 2025 tax year, the exemption was $278,000; for 2024, $270,000.5Washington Department of Revenue. Capital Gains Tax None of it changes the answer for dividend recipients: this tax simply doesn’t measure dividend income.
What Changes on January 1, 2028
The 2026 legislative session produced the biggest shift in decades. Senate Bill 6346, the “Millionaires’ Tax,” imposes a 9.9% state income tax on individual earnings above $1 million per year.6Governor of Washington. Governor Ferguson Signs Millionaires’ Tax Into Law It takes effect January 1, 2028, with the first payments due in 2029.
The tax base starts with federal adjusted gross income, which includes both ordinary and qualified dividends. A $1 million standard deduction applies to all filers, so only income above that line is taxed. Someone earning $800,000 in salary and $400,000 in dividends would pay 9.9% on the $200,000 above the threshold. The existing 7% capital gains tax stays in place, with a credit available for capital gains taxes already paid. The law also addresses the allocation of interest and dividends to Washington.
Until that January 2028 effective date, dividends remain untaxed at the state level regardless of amount. After it, only people whose total income crosses $1 million owe state tax on any portion of them.
Dividends Held Through a Business
If dividend-producing investments sit inside a business rather than a personal account, Washington’s Business and Occupation tax under RCW 82.04 comes into play. B&O tax applies to gross receipts, and investment income can fall within its reach. A deduction under RCW 82.04.4281 lets most non-financial businesses subtract amounts derived from investments, dividends, and loan interest.7Washington State Legislature. Washington State Code 82.04.4281 – Deductions, Investments, Dividends, Interest on Loans Banks, lenders, and securities firms cannot use it.
A 2024 Washington Supreme Court decision, Antio, LLC v. Department of Revenue, narrowed the deduction. The court held that investment income is only deductible when the investment activity is incidental to the company’s main business, not when investing is the main business. The Department of Revenue responded with a safe harbor: if investment income is less than 5% of annual gross receipts, the department will presume the activity is incidental and allow the deduction.8Washington Department of Revenue. Investments Businesses above that 5% line carry the burden of proving their investments are incidental to a non-investment primary activity. Holding companies and passive investment vehicles should expect closer scrutiny.
Estate Tax on the Underlying Holdings
Dividends themselves aren’t taxed on receipt, but the stocks and funds paying them are part of your taxable estate. Washington imposes an estate tax under RCW 83.100, and the full market value of investment holdings counts toward the total.9Washington State Legislature. Washington State Code 83.100.040 – Estate Tax Imposed, Amount of Tax
For deaths in 2026, the filing threshold and applicable exclusion is $3,076,000.10Washington Department of Revenue. Estate Tax Tables Estates below that figure owe no Washington estate tax; estates above it pay on the excess at progressive rates. The exclusion adjusts for inflation, so personal representatives should check the year-of-death table. For a taxpayer with a large dividend portfolio, this is where the state eventually reaches the accumulated wealth even though the annual income escaped state taxation.
Federal Tax Still Applies
Washington’s silence does not extend to the IRS. All dividend income must be reported federally, and how it’s taxed depends on the classification on your Form 1099-DIV. Box 1a shows total ordinary dividends; Box 1b shows the qualified subset.11Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions Ordinary dividends that aren’t qualified are taxed at regular federal rates. Qualified dividends, which generally come from domestic corporations and require a minimum holding period, are taxed at long-term capital gains rates:
- 0% on taxable income up to $49,450 (single) or $98,900 (married filing jointly) in 2026.
- 15% from $49,451 to $545,500 (single) or $98,901 to $613,700 (joint).
- 20% above those thresholds.
If ordinary dividends exceed $1,500 for the year, you must file Schedule B with Form 1040.12Internal Revenue Service. Instructions for Schedule B (Form 1040)
Higher-income filers face an additional 3.8% Net Investment Income Tax on dividends and other investment income when modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint). The 3.8% applies to the lesser of net investment income or the amount by which income exceeds the threshold.13Internal Revenue Service. Questions and Answers on the Net Investment Income Tax These thresholds are not indexed for inflation. Combined with the 20% qualified rate, a high-income Washington resident can face 23.8% federally on qualified dividends, and more on ordinary ones.
Watch the Working Families Tax Credit Cutoff
Washington’s Working Families Tax Credit pays refundable amounts to lower-income residents, and eligibility tracks the federal Earned Income Tax Credit.14Washington State Working Families Tax Credit. Eligibility The EITC has an investment income cap: for the 2026 tax year, you are disqualified if investment income exceeds $12,200. Dividends count toward that limit along with interest, capital gains, and rental income. It’s an all-or-nothing cutoff, not a phase-out, so a portfolio that pushes you a few dollars over costs you both the federal credit and the Washington one. If you’re near the line, track your 1099-DIV totals before filing.