Initiative 1098: How will Washington’s effective income tax rates stack up?

Fact Sheet | August 30, 2010

Executive Summary

Short Answer: The top 1%of taxpayers in Washington will have an average effective tax rate of 4%. That puts Washington’s ranking for this group of wealthy taxpayers at 27th out of the 44 states (including Washington, D.C.)that tax income.1 (See reverse)  Households with income below$200,000 will not be affected – and neither will the vast majority of those with adjusted gross income (AGI) between $200,000 and $400,000.That’s because roughly 85% of income tax returns with adjusted gross income above $200,000 are joint returns, and I‐1098’s income tax provisions kick in at $400,000 for couples.

Background: Initiative 1098 adds a tax on the top 1.2% of filers to fund education and healthcare.

  • Individual filers with income of $200,000orless and joint filers with income of $400,000orless – nearly 99% of Washington tax filers –would not pay.
  • A 5% rate applies only to individual AGI between $200,000 and $500,000, or joint AGI between $400,000 and $1million.Thismeans a couple with income of $400,001would pay 5 cents in state income tax.
  • A 9% rate applies to individual AGI in excess of $500,000, and joint AGI in excess of $1million. For example, an individual with income of $500,001would pay $15,000 for the increment between $200,000 and $500,000, and 9 cents for the dollar above $500,000, or $15,000.09.

Taxpayers could also deduct state income tax from federal taxable income, so about one quarter of the new state tax would be offset by a reduction in their federal income taxes. And I‐1098’s provision for a 20% reduction in the state portion of the property tax will apply to all property owners.


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