Washington 2026 Tax Changes — What Residents & Business Owners Must Know
On January 1, 2026, sweeping federal tax changes take effect as major provisions of the Tax Cuts and Jobs Act expire and updated rules under the One Big Beautiful Bill Act (OBBBA) take hold.
Washington does not tax personal wage income, but it does impose a capital gains tax, a gross-receipts Business & Occupation (B&O) tax, and one of the highest sales tax burdens in the country.
These federal and state rules together impact:
- W-2 earners in Seattle, Spokane, Tacoma, Vancouver, Bellevue, Everett
- Contractors, gig workers, and freelancers
- Small business owners, LLCs, and S-Corps
- Real estate investors and landlords
- Short-term rental operators
- High-income earners with significant investment activity
- Families with children
- Retirees with federal taxable income
Below is the complete Washington-specific breakdown of 2026 tax changes.
Key Federal Changes Affecting Washington Residents in 2026
Standard Deduction Changes Under OBBBA
OBBBA changes several federal income tax structures beginning in 2026, including adjustments to the standard deduction, credit eligibility, and itemized deduction rules.
- withholding
- refund amounts
- total federal liability
- retirement withdrawal taxation
Even without state income tax, these federal shifts have major effects on cash flow.
Federal Income Tax Bracket Adjustments
2026 brings updated federal tax brackets that generally increase tax liability for many households.
Workers with variable income — such as those in the service industry, medical field, construction, tech, or entertainment — will feel the changes in their take-home pay.
QBI Deduction Remains Permanent Under OBBBA
One of the most favorable 2026 updates: OBBBA made the 20% Qualified Business Income (QBI) deduction permanent.
- LLCs
- S-Corps
- sole proprietors
- contractors and consultants
- certain rental operations
- new income thresholds
- updated SSTB phaseouts
- stricter documentation
This is a major planning area for Washington’s self-employed population, especially those also impacted by state B&O tax.
Washington-Specific Tax Considerations for 2026
Even though Washington has no personal income tax, federal changes still matter — and Washington has state-level taxes that interact indirectly with federal AGI, business income, or investment activity.
1. Washington’s State Capital Gains Tax Remains in Effect
Washington imposes a state capital gains tax on certain high-value investment and asset sales.
With strong real estate appreciation and increasing federal taxable income, many Washington investors may see higher combined capital gains taxation in 2026.
- sale timing
- cost basis tracking
- depreciation recapture
- tax-efficient portfolio strategies
2. Washington Business Owners Must Navigate B&O Tax + Federal Changes
Washington does not tax business income — it taxes gross receipts through the B&O tax.
- QBI (20%) deduction
- depreciation rules
- expense treatment
- self-employment income adjustments
- applies regardless of profit
- includes more service-based and digital categories than before
- can increase total tax burden even when federal deductions improve
Business owners must plan both federally and at the gross-receipts level.
3. STR Owners, Airbnb Operators, and Landlords Face New Compliance Rules
Washington’s STR markets — including Seattle, Spokane, Tacoma, Vancouver, and coastal or mountain towns — are impacted by:
- reduced federal bonus depreciation
- stricter federal material participation tests
- enhanced safe harbor rules
- more stringent recordkeeping
- potential state-level sales/use tax exposure depending on rental structure
2026 is a critical year for STR documentation and compliance.
4. Real Estate Investors Face Appreciation + Federal Shifts
Washington home values have risen dramatically in many counties.
- capital gains rates
- depreciation schedules
- recapture
- 1031 exchange timing
- rental property loss limitations
Combined with state-level capital gains tax, real estate planning becomes essential for Washington investors.
5. High Cost of Living Amplifies Federal Changes
- high housing costs
- high sales tax
- high property values
- service and digital tax expansions
Federal adjustments to deductions, credits, and business taxes will compound overall cost of living.
Who Is Most Affected in Washington (2026)
- Self-employed workers and business owners
- Real estate investors and landlords
- STR operators
- Tech workers and variable-income earners
- Families with children
- Retirees drawing taxable income
- High-income investors subject to capital gains tax
- Professionals in high-cost metro regions
What Washington Residents Should Do Before December 31, 2025
- Review and update federal withholding
- Review and update federal withholding
- Consider Roth conversions
- Evaluate QBI eligibility and business structure
- Plan timing for property or business sales
- Review investment strategy to minimize capital gains
- Build a customized federal + Washington tax plan
Washington 2026 Tax FAQ
Washington 2026 Tax FAQ
No. Washington does not tax wages or earned income.
Does Washington tax capital gains?
Yes. Certain high-value capital gains are taxed at the state level.
Does OBBBA affect Washington businesses?
Yes — QBI is now permanent federally, but Washington’s B&O tax still applies to gross receipts.
Are STR owners impacted?
Yes. Federal depreciation and participation rules tighten in 2026.
Are retirees affected?
Yes. Federal bracket changes increase the tax cost of retirement withdrawals.
Get your 2026 Washington Tax Strategy
Washington does not tax income — but in 2026, federal changes and increased state-level taxation on business activity and capital gains will significantly affect residents. Proper planning early ensures you stay protected.