Washington State Enacts Major Tax Increases Under Senate Bill 5813
On May 20, 2025, Governor Bob Ferguson signed Senate Bill 5813 into law, marking a pivotal moment for taxpayers in Washington State. This new legislation significantly alters the state’s capital gains and estate tax systems, establishing Washington as one of the most aggressive states in the country regarding wealth taxation.
Capital Gains Adjustments
The legislation builds upon Washington’s existing capital gains tax, originally introduced in 2022 to support the state’s constitutional obligation to fund education. Initially, the tax imposed a flat rate of 7% on net long-term capital gains exceeding an inflation-adjusted exemption, set at $270,000 for 2024. However, with SB 5813, a progressive element has been added, retroactively effective from January 1, 2025. Taxpayers now face a 2.9% surtax on capital gains above $1 million, increasing the top marginal tax rate to 9.9%. This change places Washington among states with the highest capital gains taxes nationwide.
Updated Capital Gains Tax Brackets (2025)
Source: Washington State Legislature. Senate Bill 5813 – Increasing Funding to the Education Legacy Trust Account by Creating a More Progressive Rate Structure for the Capital Gains Tax and Estate Tax. 2025, https://app.leg.wa.gov/billsummary?BillNumber=5813&Year=2025.
Estate Tax Revised
In tandem, SB 5813 overhauls the estate tax, effective July 1, 2025. While it initially provides relief by raising the estate tax exemption to $3 million (with annual inflation adjustments), this benefit is tempered by significantly increased tax rates on larger estates. Many exemptions and planning opportunities do remain under the revised system, making it a timely reminder to ensure your estate documents are up to date and optimized for the new regime. Particularly notable is the steep hike for estates valued over $9 million, where the top rate jumps sharply from 20% to 35%.
New Estate Tax Brackets (Effective July 1, 2025)
Source: Washington State Legislature. Senate Bill 5813 – Increasing Funding to the Education Legacy Trust Account by Creating a More Progressive Rate Structure for the Capital Gains Tax and Estate Tax. 2025, https://app.leg.wa.gov/billsummary?BillNumber=5813&Year=2025.
What This Means for Washington Taxpayers
These changes underline the importance of proactive financial planning. As Washington adopts a more aggressive stance on taxing wealth, understanding these new tax structures is critical. If you are managing substantial capital assets or planning your estate, consult with your advisor soon to evaluate potential impacts and opportunities.
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