Washington Governor Ferguson signs millionaires tax to expand working families credit

Washington State Governor Bob Ferguson signed a new tax on incomes above $1 million into law on Sunday, directing the revenue toward expanding the state's Working Families Tax Credit and providing relief for small business owners. Ferguson called the measure historic at the signing ceremony, noting that it applies to less than half of one percent of Washington residents. The state has no personal income tax on wages, so the new law targets a specific category of high earners through a surcharge structure rather than a broad income tax.

The Working Families Tax Credit is Washington's version of the federal Earned Income Tax Credit. It provides direct cash payments to low and moderate income households, and the expansion funded by this law would extend eligibility to an additional 460,000 households that currently do not qualify. That is a meaningful increase. The program currently reaches roughly 400,000 households annually, so the expansion would nearly double its reach.

What the tax actually does and who pays it

The legislation imposes a surcharge on capital gains and other income sources exceeding $1 million per year. Washington already has a 7 percent capital gains tax on gains above $262,000, which the state Supreme Court upheld in 2023. The new millionaires tax builds on that framework by adding a surcharge for the highest earners, creating a two-tier structure for high-income residents. The state Office of Financial Management has not yet published a final revenue estimate for the new surcharge, but legislative staff projected annual collections in the range of $500 million to $700 million.

Small business owners get a specific carve-out under the law. Business owners who sell a company or liquidate assets as part of a retirement or succession arrangement can apply for a reduced rate if the transaction is a one-time event rather than ongoing income. The provision was added during committee negotiations to address concerns from business groups that the tax would hit owners who spent decades building a company and were taxed heavily on a single-year transaction that does not reflect their ordinary income.

How the Working Families Tax Credit expansion works in practice

Washington's Working Families Tax Credit was first funded in 2021 and began making payments in 2023. In its first full year of payments, the average credit per household was approximately $315, with amounts ranging based on family size and income level. The maximum credit for a family with three or more children reached $1,255. The expansion funded by the new law increases the income ceiling for eligibility, which is the main reason an additional 460,000 households become newly eligible. Many of those households are working adults without children, a group that receives substantially less support under the federal EITC.

Ferguson's office said the expansion also increases the maximum credit amounts for existing recipients, though the exact new figures depend on final budget reconciliation. The legislature is expected to publish updated credit tables before the program's next enrollment cycle opens in January 2027.

The vaccine schedule provision and what it does

The legislation also includes a provision granting Washington State independent authority to set its own childhood vaccine schedule, separate from federal CDC recommendations. The provision was added in response to concern among state legislators and public health officials that the CDC's vaccine advisory processes could be restructured or deprioritized under the current federal administration. Washington is one of at least a dozen states that have introduced similar bills in 2025 and 2026 to insulate their public health programs from potential changes at the federal level.

In practical terms, the provision means that Washington's Department of Health can adopt a vaccine schedule that differs from federal recommendations if the state's own scientific advisory body determines it is warranted. The state currently follows CDC recommendations, and no departure is planned. The law simply establishes that the state has the legal authority to act independently if federal guidance changes in ways that Washington's public health officials consider inadequate.

The political context and likely legal challenges

The millionaires tax passed the Washington State Legislature along party lines, with Democrats in support and Republicans opposed. Republican lawmakers argued the tax would accelerate the departure of high-income residents and business owners to states without capital gains taxes, particularly neighboring Oregon, which also has no sales tax. Washington Policy Center, a free-market research organization based in Seattle, published an analysis in February projecting that the state's capital gains tax has already prompted a small but measurable increase in high-income residents changing their domicile to Nevada, Florida, and Texas.

A legal challenge to the new surcharge is expected. The Freedom Foundation, which filed one of the original challenges to Washington's capital gains tax, said in a statement Sunday it was reviewing the new law for potential constitutional issues. The Washington State Supreme Court's 2023 ruling that the existing capital gains tax was an excise tax rather than an income tax was decided by a 7-2 margin, which gives the current tax structure a reasonably strong legal foundation. The new surcharge was drafted to fit within that same excise tax framework, which is why the state's lawyers believe it will survive court review.