Initiative 1098: How will Washington’s effective income tax rates stack up?

EffectiveTaxRates-Aug10

Short Answer: The top 1% of taxpayers in Washington will have an average effective tax rate of 4%. That puts Washington’s ranking for this group of wealthy taxpayers at 27th out of the 44 states (including Washington, D.C.) that tax income.

Households with income below $200,000 will not be affected – and neither will the vast majority of those with adjusted gross income (AGI) between $200,000 and $400,000. That’s because roughly 85% of income tax returns with adjusted gross income above $200,000 are joint returns, and I?1098’s income tax provisions kick in at $400,000 for couples.

Background: Initiative 1098 adds a tax on the top 1.2% of filers to fund education and health care.

  • Individual filers with income of $200,000 or less and joint filers with income of $400,000 or less – nearly 99% of Washington tax filers – would not pay.
  • A 5% rate applies only to individual AGI between $200,000 and $500,000, or joint AGI between $400,000 and $1 million. This means a couple with income of $400,001 would pay 5 cents in state income tax.
  • A 9% rate applies to individual AGI in excess of $500,000, and joint AGI in excess of $1 million. For example, an individual with income of $500,001 would pay $15,000 for the increment between $200,000 and $500,000, and 9 cents for the dollar above $500,000, or $15,000.09.

Initiative 1098 Tax Rates and Income Thresholds for Individual and Joint Filers

Rate Individual Filer Threshold Joint Filer Threshold
n/a All AGI under $200,000 All AGI under $400,000
5% All AGI between $200,000 – $500,000 All AGI between $400,000 – $1,000,000
9% All AGI over $500,000 All AGI over $1,000,000

Taxpayers could also deduct state income tax from federal taxable income, so about one quarter of the new state tax would be offset by a reduction in their federal income taxes. And I?1098’s provision for a 20% reduction in the state portion of the property tax will apply to all property owners.

Looking for more information about Initiative 1098? Visit the Economic Opportunity Institute website.

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