Washington’s Millionaire Tax Creates a Marriage Penalty
Wealth managers routinely advise high-net-worth couples on strategies to reduce their tax burden, from maximizing annual exclusion gifts to purchasing tax-exempt municipal bonds.
Here’s another one to add to the list: Don’t get married.
High-earning couples have long faced a “marriage penalty” on their state and federal income taxes. This typically adds a few thousand dollars to a household’s tax bill, and up to tens of thousands for ultra-high earners, but the effect is usually smoothed out by graduated tax brackets.
Couples can also strategically minimize a high penalty by maxing out Internal Revenue Code 401(k)s and health savings accounts, deferring compensation or bundling charitable contributions.
But a new marriage penalty is looming and hard to avoid: the millionaire’s tax.
In Washington state, where I practice family law, the upcoming tax would impose a steep premium on marriage certificates for high earners, creating one of the nation’s steepest levies of its kind. Under the law, set to take effect on Jan. 1, 2028, any income over $1 million is taxed at 9.9%.
Whether it ever takes effect depends on voters, who will decide this November whether to repeal it via Initiative 645. But if it survives the ballot measure, high earners face an immediate statutory trap.
Though the tax doesn’t take effect for another year and won’t even be levied until 2029 tax returns are due, it has not yet come up in family law courtrooms. But it’s starting to come up in planning conversations now, precisely because people with this level of wealth tend to plan years ahead.
I’m fielding questions in prenuptial and marriage-timing discussions as well as the planning phases of business sales and divorces. What was entirely theoretical a few months ago is becoming a real-world question for HNW couples.
Because complex estate plans, prenuptial agreements and major liquidity events take months to structure and execute properly, wealth managers can’t afford to wait until 2028 to start these conversations. By the time a client is sitting down to file their tax returns a year later, the window for strategic mitigation will have firmly slammed shut.
Because Washington has historically avoided state income taxes, there are no brackets here. It’s an all-or-nothing cliff.
That means a dual-earner couple making $600,000 each would pay nothing if they were unmarried, but once they combine households by getting married, their state tax bill would jump by $19,800. To take it to an extreme, if they each made $999,999, their tax would jump from zero to $98,999 simply for being married.
To be fair, most marriages aren’t quite that financially equitable. While the Seattle area is seeing an increasing number of dual high-earning couples, it’s much more common for high-earning households to be asymmetrical, with one spouse earning the lion’s share. Those couples typically get a marriage bonus on their federal income taxes. Under Washington’s millionaire tax, however, the lower-earning spouse faces a distinct penalty.
In fact, if your client’s spouse makes more than $1 million, the state can tax the very first dollar of your client’s individual income at 9.9%, creating a massive disincentive to work.
Preventing this exact kind of financial shock is precisely why income tax systems rely on graduated brackets. By progressively increasing tax rates, traditional tax systems ensure that earning an extra dollar, or tying the knot, doesn’t trigger a disproportionate financial shock.
Washington’s single-threshold structure abandons that century-old approach, replacing a smooth slope with a steep cliff.
Partial Fixes
So, what can couples facing this tax do? A few partial fixes exist, but each comes with a trade-off, which is what makes this tax so distorting.
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Delay marriage. Some couples might choose to delay or even skip getting married to avoid this massive tax spike. But in Washington, “don’t get married” isn’t without consequence. Long-term unmarried couples give up the legal protections that marriage provides, usually to the severe disadvantage of the lower earner.
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Time income. High earners might choose to defer a bonus, business sale or large capital gains so that household income stays under the $1 million threshold in a given year. Others might accept stock options or equity instead of a cash salary, structuring those benefits over several years.
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Move. Some couples will simply choose to leave Washington state.
Couples facing these decisions require a tax expert and a family lawyer working together to find the best solution. A tax strategy that looks flawless on a spreadsheet can be a disaster if it leaves someone financially vulnerable after a breakup or triggers a bitter custody dispute over relocation.
Broader Wave Targeting Wealthy
Wealth managers in other parts of the country may be tempted to view this as a quirky Pacific Northwest fight. It isn’t. Washington’s steep income cliff is part of a broader wave of state-level tax policies targeting the wealthy, with comparable proposals floating in Maryland, Oregon and California.
California, for instance, has proposed a billionaire tax, a one-time, 5% flat tax on accumulated net worth. These efforts are aimed specifically at wealth and earnings not entirely captured by traditional income, sales, or property taxes.
Politically, it makes sense. Lawmakers have long tried to find ways to raise taxes on anyone but their own constituents, or as former Louisiana U.S. Sen. Russell Long famously quipped: “Don’t tax you, don’t tax me, tax that fellow behind the tree!” Millionaires and billionaires make an easy target for populists looking to raise revenue.
It may also reflect the success of the wealth management industry. By identifying numerous legitimate ways to reduce taxable income, wealth managers and tax advisors have helped lower the effective tax rate for high-earning households. This success appears to be fueling a public and political backlash aimed at making the wealthy pay more. But rather than simplifying the existing tax code and closing loopholes, politicians are opting for a much blunter instrument. That doesn’t make taxes any fairer; it just creates another layer of unintended consequences.
