Washington State Capital Gains Tax and WA Cares: No Income Tax, Not No Tax

By Paulo Horta · Published July 2026 · 9 min read

Our California equity compensation guide covers how RSUs and stock options get taxed the moment they vest or exercise. Seattle's tech workforce lives under a completely different system — Washington still has zero state income tax on wages, full stop, which is precisely why so many people compare the two cities purely on salary. But two newer Washington taxes change that comparison the moment equity gets sold or a paycheck gets a closer look, and neither one is well understood outside the state.

Wages: Still Genuinely Untaxed at the State Level

This part hasn't changed and isn't likely to soon: salary, bonuses, and RSU vesting are all taxed at the federal level only in Washington — no state income tax touches ordinary wage income at all. It's a genuine, durable advantage over California for anyone whose compensation is mostly cash and vesting equity taxed as income.

The Capital Gains Excise Tax: Where It Actually Bites

Washington introduced a capital gains excise tax in 2021, survived a state supreme court challenge in 2023, and has been in effect since. It applies to long-term capital gains — profit from selling assets held over a year — above an annually-adjusted threshold, which for 2026 sits at $262,000.

That top rate is newer than the tax itself: an additional 2.9% on gains above $1 million took effect starting with the 2025 tax year, bringing the top combined rate to 9.9%. Retirement accounts, real estate, timber, livestock, and goodwill from selling a qualifying family-owned small business are all exempt — the tax targets financial assets like stock specifically. Short-term gains (assets held under a year) aren't touched at all.

The practical effect for Seattle tech employees: RSU vesting itself is still untaxed at the state level, exactly as before. But once you sell shares you've held for over a year at a large enough profit, that specific transaction can owe Washington tax — a very different mechanism from California's approach of taxing the vest itself, but not a free pass on large, successful long-term holdings either.

WA Cares: The Payroll Line Nobody Explains

Separately from anything related to investments, most Seattle payslips carry a small, mandatory deduction most employees have never had explained to them: the WA Cares Fund, a state long-term care insurance program funded by a 0.58% payroll tax with no income cap at all. Every dollar of wages is subject to it, all the way up — there's no ceiling the way there is with Social Security.

The programme reached a genuine milestone in July 2026: benefits became claimable for the first time, after years of collection. For high earners who've been paying into it since it started, the lifetime benefit is relatively modest compared to total contributions — worth understanding as a mandatory cost of working in Washington rather than expecting it to function like a scalable insurance policy.

Worked Example: $130,000 Salary, Seattle

A single employee earning $130,000 in Seattle pays federal tax, standard FICA, and the WA Cares 0.58% payroll tax — no state income tax on any of it. Compare that full breakdown, including WA Cares, on our Seattle salary calculator, and see exactly how it stacks up against San Francisco's very different equity-tax treatment on the city comparison tool.

This article is general information, not tax or financial advice. Capital gains tax thresholds are inflation-adjusted annually and WA Cares rules include opt-out provisions for certain private long-term care insurance holders — confirm your specific situation with a Washington-licensed tax professional.