What is the combined long-term capital gains tax rate in Washington state in 2026?

A Washington state resident with federal taxable income above the 20% LTCG threshold faces a combined rate of approximately 30.8% on long-term capital gains between the WA standard deduction (~$278,000 for 2025, inflation-adjusted) and $1 million, and 33.7% on gains above $1 million. The stack is: 20% federal LTCG + 3.8% federal NIIT + 7% WA = 30.8% (middle tier); 20% + 3.8% + 9.9% WA = 33.7% (top tier). Washington has no general income tax on wages or ordinary income — the LTCG excise tax applies specifically to long-term capital gains above the annual standard deduction.

Does Washington state tax RSU income?

No. Washington has no general income tax. RSU vesting creates ordinary income — which is not subject to any Washington state tax. However, when an employee later sells RSU shares they received in prior years and those shares have appreciated for more than 12 months, the resulting long-term capital gain is subject to Washington's capital gains excise tax at 7% (on gains between the ~$278K deduction and $1M) or 9.9% (on gains above $1M). This is the key asymmetry: WA taxes the capital gain from selling appreciated shares but not the ordinary income from receiving them.

Is direct indexing worth it for Washington state investors?

Yes — significantly more so than for investors in states with no capital gains tax beyond the federal rate. Washington's 7%–9.9% LTCG excise tax stacks on top of the federal 23.8% (20% + NIIT), creating a combined rate of 30.8%–33.7%. At a $1M taxable account generating 1.5% annual harvest, the net annual benefit in WA (after a 0.25% fee premium) is approximately $2,120–$2,555 versus $1,070 in a no-tax state. For Amazon and Microsoft employees with regular LTCG from selling appreciated shares, the break-even is solidly positive at $500K+ in taxable assets.

What is Washington state's capital gains tax threshold for 2026?

The Washington capital gains excise tax applies only on gains above an annually inflation-adjusted standard deduction. For 2025, that deduction is $278,000 per individual. The 2026 threshold had not been officially published by the Washington Department of Revenue as of May 2026 — based on the trajectory from $270,000 (2024) to $278,000 (2025), the 2026 deduction is expected to be approximately $284,000–$290,000. Each individual files separately for WA LTCG purposes; a married couple effectively has two separate deductions. Real estate sales and retirement account distributions are exempt from the WA excise tax regardless of gain size.

I'm an Amazon employee in Seattle with RSUs. How does direct indexing help me?

Amazon RSU vesting creates ordinary income (no WA state tax on the vesting event). When you later sell appreciated shares from prior vests — after a 12-month hold — those long-term capital gains are subject to WA's 7% or 9.9% excise tax in addition to federal LTCG and NIIT. A direct indexing account builds a loss bank by systematically harvesting short-term and long-term losses from individual S&P 500 stocks. Those harvested losses offset the LTCG from your Amazon share sales at the 30.8%–33.7% combined WA rate. A specialist advisor also configures an employer-stock exclusion screen to ensure your DI portfolio doesn't hold AMZN, which would trigger wash-sale disallowance when you receive new AMZN shares through payroll vesting within 30 days.

Does Washington's capital gains tax apply to Roth conversions?

No. Washington's capital gains excise tax applies specifically to long-term capital gains on investment assets — it does not apply to Roth IRA conversion income, which is classified as ordinary income, not a capital gain. Washington has no general income tax on ordinary income. This creates an important planning opportunity: WA residents can convert traditional IRA assets to Roth without triggering any Washington state tax on the conversion. This is the opposite of high-income-tax states like California or New York, where Roth conversions add to the state income tax bill at the full ordinary-income rate.

Is Washington's capital gains tax constitutional?

Yes — the Washington Supreme Court upheld the capital gains excise tax in Quinn v. State of Washington (March 2023). The court held that the tax is an excise tax on the privilege of selling or exchanging capital assets, not an income tax, and is therefore constitutional under Washington's constitution, which prohibits graduated income taxes. The tax has been in effect since 2022, with SB 5813 adding the 9.9% tier on gains above $1 million (effective retroactively January 1, 2025).

Does Washington state conform to the federal QSBS (§1202) exclusion?

Washington's capital gains excise tax is computed based on the taxpayer's long-term capital gains as determined for federal income tax purposes, including exclusions. Gains that are excluded from federal gross income under §1202 (QSBS) are generally excluded from the WA LTCG base as well, since the WA excise tax tracks the federal amount. However, the interaction between the federal §1202 exclusion and WA's specific excise tax structure is a nuanced point — WA-based founders with large QSBS events should confirm with a WA tax attorney how the state computes the excise tax base for §1202-excluded gains. Unlike California, WA has not enacted a statute specifically nonconforming to §1202.

Direct Indexing in Washington State: 7% and 9.9% Capital Gains Tax

Washington has no general income tax — wages, salaries, and RSU vesting income are all exempt from state tax. But in 2022, Washington enacted a capital gains excise tax on long-term investment gains above an annual deduction. A new 9.9% tier on gains above $1 million was added in 2025 via SB 5813. Combined with the federal LTCG rate and NIIT, Washington's top-bracket investors now face 30.8%–33.7% on long-term capital gains. For Amazon and Microsoft employees, founders, and executives with concentrated equity positions, that combined rate makes direct indexing substantially more valuable than in no-state-tax jurisdictions. Here's the math.

Washington's capital gains excise tax: the two-tier structure

Washington's capital gains tax was upheld by the Washington Supreme Court in Quinn v. State of Washington (March 2023) as an excise tax on the realization of long-term capital gains — not an income tax. The tax is computed on the same capital gains the taxpayer reports for federal income tax purposes, above an annually inflation-adjusted standard deduction.¹

For 2025, the standard deduction is $278,000 per individual. The Washington Department of Revenue adjusts this figure annually for inflation; the 2024 deduction was $270,000 and the 2026 figure had not been published as of May 2026 — expect approximately $284,000–$290,000 based on the trend.¹

The rate structure as of 2026:

WA long-term capital gains	WA excise tax rate
Below annual standard deduction (~$278K for 2025)	0%
Above deduction, up to $1,000,000	7%
Above $1,000,000	9.9%

The 9.9% tier on gains above $1 million was added by SB 5813, signed by Governor Bob Ferguson on May 20, 2025, with retroactive application to January 1, 2025. The $1 million threshold is fixed in statute and not indexed for inflation.²

Exemptions from the WA capital gains excise tax include real estate sales, distributions from retirement accounts (IRAs, 401(k)s, pensions), sales of certain farm and agricultural assets, installment sales of WA-based small businesses, and condemnation proceeds. The exemption for real estate is broad — Washington residents selling appreciated property do not owe the WA excise tax on the gain, regardless of size.¹

Combined capital gains rate for Washington investors

Federal and Washington rates stack as follows for investors above the 20% federal LTCG threshold (taxable income above $545,500 single / $613,700 MFJ in 2026):⁶

Gain level	Federal LTCG	Federal NIIT	WA excise	Combined rate
Below WA deduction (~$278K)	20%	3.8%	0%	23.8%
WA deduction to $1M	20%	3.8%	7%	30.8%
Above $1M	20%	3.8%	9.9%	33.7%

Investors with taxable income below the 20% federal threshold but above the 15% threshold ($98,900 MFJ in 2026) pay 15% federal LTCG instead — combined with NIIT and WA excise, those rates are 15% + 3.8% + 7% = 25.8% (middle tier) or 15% + 3.8% + 9.9% = 28.7% (top tier).⁶

Washington's no-income-tax status means wages, salary, RSU ordinary income, and Roth conversion income are not subject to any Washington state tax. The LTCG excise applies only to realized long-term gains on capital assets. This is the opposite of California or New York, which apply their income tax rates to both ordinary income and capital gains.

Every $30,000 of harvested losses saves $9,240 in Washington (30.8% tier) vs. $7,140 in Texas.
At a $2M taxable account generating 1.5% annual harvest, that's $2,100 more in after-tax wealth per year in Washington — before the compounding effect of sheltered gains.

Break-even table: Washington vs. no-state-tax

Annual net benefit of direct indexing, assuming a 1.5% annual harvest rate and a 0.25% fee premium over a low-cost ETF. "WA top" uses the 33.7% combined rate (gains above $1M). "WA mid" uses the 30.8% rate (gains between the deduction and $1M). TX/FL uses 23.8% federal only.

Portfolio size	Annual harvest (1.5%)	WA top (33.7%)	WA mid (30.8%)	TX/FL (23.8%)	Fee (0.25%)	WA mid net
$250,000	$3,750	$1,264	$1,155	$893	$625	+$530
$500,000	$7,500	$2,528	$2,310	$1,785	$1,250	+$1,060
$1,000,000	$15,000	$5,055	$4,620	$3,570	$2,500	+$2,120
$2,000,000	$30,000	$10,110	$9,240	$7,140	$5,000	+$4,240
$5,000,000	$75,000	$25,275	$23,100	$17,850	$12,500	+$10,600

Assumes 1.5%/year harvest rate and 0.25% DI fee premium over a low-cost ETF. WA top uses 33.7% combined (9.9% WA + 23.8% federal). WA mid uses 30.8% (7% WA + 23.8% federal). TX/FL uses 23.8% federal only. These are estimates; actual harvest rates vary with market conditions. WA tax savings shown are for gains above the annual WA deduction threshold only.

Amazon and Microsoft employees: the RSU asymmetry

Washington is home to two of the largest employers of RSU-compensated tech workers in the world: Amazon (Seattle HQ) and Microsoft (Redmond). The WA LTCG excise tax creates a specific planning challenge — and opportunity — for these employees because of how the tax interacts with equity compensation.

What the WA excise tax does NOT apply to:

RSU vesting income: when your employer grants RSUs that vest, the value at vesting is ordinary income — taxed at the federal level and no WA state tax. Payroll withholding covers federal; Washington takes nothing on ordinary income.
NQSO exercise spread: the bargain element at exercise is ordinary income for federal purposes — again, no WA state tax.
Salary and bonus: W-2 wages face no WA state income tax.

What the WA excise tax DOES apply to:

Selling appreciated RSU shares held more than 12 months: when your 2022 Amazon vest has grown and you sell it in 2026, the long-term capital gain is subject to the 7% or 9.9% WA excise tax in addition to federal LTCG and NIIT.
Selling appreciated founder equity, concentrated AMZN/MSFT holdings, or any other taxable long-term investment.
Realizing long-term gains from a taxable brokerage account.

The strategy for Amazon and Microsoft RSU holders in Washington:

Fund the DI account with fresh-vest proceeds. Newly vested shares (or their cash equivalent) have a cost basis equal to the vesting-day price — no embedded gain. Deploying these into a direct-indexed separately managed account starts building a loss bank without triggering a taxable event.
Use the DI loss bank to fund sales of older tranches. Shares from 2021–2023 vests that have appreciated significantly carry embedded long-term gains. Each $10,000 of DI losses harvested offsets $10,000 of gain from selling older tranches at the 30.8%–33.7% combined WA+federal rate.
Configure the employer-stock exclusion screen. Your DI portfolio must exclude your employer's stock — AMZN for Amazon employees, MSFT for Microsoft employees. Without this exclusion, harvesting losses on individual Amazon or Microsoft shares in your DI portfolio triggers a wash-sale disallowance if you receive new shares through payroll vesting within 30 days before or after. A specialist advisor sets this screen at account opening.
Build the loss bank before a large planned sale. If you plan to sell a concentrated multi-year holding, ideally 12–18 months of DI operation precede the sale, building enough unrealized losses to meaningfully offset the gain.

The $278,000 threshold: when the WA excise tax doesn't apply

Investors with annual long-term capital gains below the WA standard deduction (~$278,000 for 2025, ~$284,000–$290,000 expected for 2026) pay zero Washington excise tax — their gains are only subject to federal LTCG and NIIT at 23.8% (or 15% + 3.8% if below the 20% federal threshold).

For these investors, direct indexing still provides value at the federal level. But the incremental benefit of WA state tax savings is zero. The threshold planning question:

Regular low-volume sellers: An employee who sells $100,000 of appreciated RSU shares per year has no WA excise exposure. DI helps at the federal level (23.8% vs. 0% on harvested losses), but the WA component adds nothing.
Lumpy-event investors: An employee who sells $700,000 of Amazon shares in a single year (e.g., diversifying a large accumulated position) has $700,000 − $278,000 = $422,000 subject to WA excise at 7% = $29,540 in WA tax. Harvested DI losses offset this at the 30.8% combined rate — the WA component becomes highly meaningful in that year.

The implication: Washington investors who anticipate a large single-year capital gain event (IPO secondary, concentrated stock diversification, business sale) benefit most from building a DI loss bank before the event, not after. A specialist advisor can model the expected gain, work backward to the loss bank size needed, and recommend the platform and deployment timeline.

Annual LTCG event	WA taxable gain (above $278K)	WA excise at 7%	Combined rate on taxable WA portion
$100,000 (routine seller)	$0	$0	23.8% federal only
$300,000 (modest event)	$22,000	$1,540	30.8% on the $22K WA portion
$700,000 (concentrated-stock sale)	$422,000	$29,540	30.8% on the $422K WA portion
$2,000,000 (IPO / business exit)	$1,722,000 ($722K at 7%, $1M at 9.9%)	$149,540	Blended 30.8–33.7%

Roth conversions in Washington state: the no-ordinary-income-tax advantage

Washington's no-income-tax environment creates an important Roth conversion planning advantage. In states like California (13.3% state rate) or New York (9.65–10.9% state rate), a Roth conversion adds to the state income tax bill at the full ordinary-income rate. In Washington, Roth conversion income is ordinary income — and Washington levies no tax on ordinary income.

This makes Washington one of the best states in the country for accelerating Roth conversions. The direct indexing interaction:

Roth conversion income is 100% ordinary income — capital losses from DI harvesting cannot directly offset it (§1211(b) limits the §1211 deduction to $3,000/year against ordinary income).
However, DI reduces your taxable capital gains distributions from existing equity holdings, which keeps your MAGI lower, which keeps you below IRMAA thresholds and reduces the income-dependent phase-outs that would otherwise constrain a Roth conversion.
For WA investors, a coordinated strategy of large Roth conversions (using the 0% WA rate on ordinary income) plus DI loss harvesting (reducing federal LTCG exposure) can produce significant long-term after-tax improvement that is specific to Washington's tax structure.

See the Roth conversion + DI guide for the worked mechanics.

Washington estate tax context

Washington State imposes a separate estate tax — one of only a handful of states with one — with a graduated rate of 10%–20% on estates above approximately $2.193 million (the exemption is indexed for inflation).⁴ This is distinct from both the federal estate exemption ($15 million under OBBBA 2025) and the capital gains excise tax.

The direct indexing interaction with WA estate planning:

§1014 step-up still applies. Appreciated DI lots that pass to heirs at death receive a federal basis step-up to fair market value, eliminating the embedded long-term capital gain for the heir. Washington does not impose a separate capital gains tax at death — the heir who later sells inherited DI shares pays WA excise only on appreciation occurring after the inherited cost basis date.
Harvest losses in life; step up gains at death. The DI harvest-the-losers, hold-the-winners strategy is even more powerful in Washington: harvesting losses today generates real tax savings (at 30.8%+), while highly appreciated winners held until death avoid both the WA excise and the federal capital gains on that appreciation. A specialist advisor manages which lots to harvest and which to hold for the step-up.
WA estate tax is on value, not gains. The WA estate tax applies to the total taxable estate value, not specifically to unrealized gains. Appreciated DI positions increase estate value and thus estate tax exposure. For estates approaching the WA threshold, coordination with an estate planning attorney is important.

See the DI estate planning guide for the full §1014 step-up framework.

Platform selection for Washington state investors

All major direct indexing platforms serve Washington investors through advisor networks. Considerations specific to WA and the Amazon/Microsoft employee base:

Parametric Portfolio Associates (advisor-only, ~$250K+ minimum, 0.20–0.35% platform fee) is the most commonly used platform for WA-based equity-compensation holders with complex multi-account situations. Cross-account wash-sale coordination is essential for Amazon/MSFT employees who hold employer stock across taxable, 401(k), and ESPP accounts simultaneously. Parametric's advisor coordination process is the only reliable way to manage this at scale.
Aperio (BlackRock) (~$1M+ minimum, advisor-only) adds deep ESG customization and long/short extension strategies — relevant for WA technology executives with specific sector-exposure or governance mandates, and for large taxable accounts ($2M+) where the fee structure is efficient relative to tax alpha potential.
Vanguard Personalized Indexing (~$250K minimum, 0.20% platform fee) provides an accessible, cost-efficient entry point for WA investors with simpler equity situations — less RSU and K-1 complexity, no multi-custodian wash-sale risk.
Schwab Personalized Indexing and Wealthfront ($100K minimum) are practical starting points for WA investors who don't yet have employer-stock wash-sale complexity. The key limitation: Schwab and Wealthfront monitor wash-sales only within their own platforms — if you hold AMZN or MSFT in a 401(k), ESPP plan, or other custodian account, they will not protect you from cross-account wash-sale disallowance.
Frec ($20K minimum, 0.09% fee) provides the lowest-cost DI entry point, appropriate for WA investors with smaller taxable accounts building toward the WA deduction threshold.

Amazon and Microsoft employees: the employer-stock wash-sale screen is non-negotiable.
If you receive AMZN or MSFT shares through RSU vesting, ESPP, or stock option plans, your DI portfolio must exclude that employer's stock. Any other configuration risks permanent wash-sale disallowance on losses harvested in the DI account. This is the most common implementation error for tech-company DI clients in Washington — a specialist advisor configures this screen correctly from day one.

Related guides

Sources

Washington Department of Revenue — Capital Gains Tax. WA capital gains excise tax: 7% rate on long-term capital gains above the annual standard deduction (~$278,000 for 2025, inflation-adjusted). Exemptions: real estate sales, retirement account distributions, farm assets, small business installment sales. Standard deduction adjusts annually per CPI. The $278,000 deduction applies per individual; each filer receives their own deduction.
Washington Department of Revenue — New Tiered Rates for Washington's Capital Gains Tax. SB 5813 (signed May 20, 2025) added a 9.9% tier on long-term capital gains above $1,000,000, retroactive to January 1, 2025. The $1,000,000 threshold is fixed in statute and not indexed for inflation. The 7% rate continues to apply on gains between the standard deduction and $1,000,000.
Brickley Wealth — Washington Tax Changes 2026: Capital Gains, Estate & Millionaires Tax. Analysis of WA's current capital gains excise tax structure, the 9.9% tier, and estate tax — with context for Washington high-earners navigating the changing landscape.
Washington Department of Revenue — Estate Tax. Washington state estate tax applies to estates above approximately $2.193 million (inflation-adjusted). Rate is graduated from 10% to 20%. WA estate tax is distinct from the federal estate tax and from the capital gains excise tax. The §1014 step-up in basis still applies to inherited assets for capital gains purposes.
Tax Foundation — State Capital Gains Tax Rates, 2026. Washington: 7%/9.9% on long-term capital gains. CA: 13.3%. OR: 9.9%. NY: 10.9% (above $25M). TX and FL: 0%. Federal LTCG + NIIT at top bracket: 23.8%.
IRS Rev. Proc. 2025-32 — 2026 Federal Tax Thresholds. 2026 federal long-term capital gains rate thresholds: 20% rate begins at $545,500 (single) / $613,700 (MFJ); 15% rate begins at $49,450 (single) / $98,900 (MFJ). NIIT threshold: $200,000 (single) / $250,000 (MFJ), not inflation-adjusted per IRC §1411.

Washington capital gains excise tax rates verified against WA Department of Revenue guidance as of May 2026. 9.9% tier verified per SB 5813 special notice (WA DOR). Federal LTCG thresholds verified per IRS Rev. Proc. 2025-32. WA standard deduction for 2026 not yet published as of May 2026; figure of ~$278,000 is the 2025 confirmed amount. Harvest rate estimates (1.5%/year) are based on industry research and vary significantly with market conditions. This page is informational only and does not constitute financial, tax, or legal advice. Consult a CPA or tax attorney for your specific situation.

Get matched with a direct indexing specialist for Washington state

At 30.8%–33.7% combined, every dollar of loss harvested in Washington is worth 29%–41% more than in a no-state-tax state. A specialist can model your Amazon or Microsoft equity position, expected LTCG events, and Washington tax picture — including RSU vesting schedules, concentrated stock holdings, and QSBS timing — to give you a real net-benefit estimate. Free match, no obligation.

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