Washington State Tax for Expats: No Income Tax, But Capital Gains Tax Applies
Washington has no state income tax but enacted a 7% capital gains tax in 2022. Learn the residency rules and how Washington taxes investment income for Americans living abroad.
Residency Persistence
Washington has no state income tax on wages, but a 7% capital gains tax applies to long-term capital gains over $250,000 per year. Washington residents living abroad are subject to this tax on worldwide capital gains. Washington has no estate tax for estates under $2.193 million.
Key Rules for Washington Expats
Washington has no state income tax on wages, salaries, or ordinary income.
Washington has a 7% long-term capital gains tax on gains exceeding $250,000 per year (effective 2022).
The capital gains tax applies to Washington residents on worldwide capital gains, including gains from foreign investments.
Washington has a state estate tax with an exemption of $2.193 million.
Washington does not have an inheritance tax.
Steps to Terminate Washington Residency
Establish a Washington address and update your voter registration to Washington before moving abroad.
Obtain a Washington driver's license and register your vehicle in Washington.
Open a Washington bank account and update your mailing address with all financial institutions.
File federal taxes using your Washington address to establish domicile.
If you maintain Washington property, ensure property taxes are paid or the property is rented.
Document your intent to make Washington your permanent US domicile.
Common Washington Audit Traps
Assuming Washington residency eliminates all state tax obligations — the capital gains tax still applies.
Not reporting worldwide capital gains on the Washington return if you remain a resident.
Failing to pay Washington property taxes on maintained real estate.
Not properly establishing Washington domicile before moving abroad, leaving domicile ambiguous.
Special Considerations for Expats
Washington is a good state for domicile if you have modest capital gains, but the 7% capital gains tax can be significant for high-net-worth individuals.
Washington property tax applies to maintained real estate regardless of residency.
If you have no Washington property and no capital gains over $250,000, there are generally no state tax filing obligations.
Washington's estate tax exemption ($2.193 million) is lower than the federal exemption, so estate planning is important for high-net-worth individuals.
Frequently Asked Questions
Do I have to pay Washington state tax if I live abroad?
Washington has no state income tax on wages, so there is no tax on earned income. However, if you are a Washington resident and have long-term capital gains exceeding $250,000 in a year, you owe the 7% Washington capital gains tax on worldwide gains. If you have established a new domicile abroad, you are generally not subject to Washington tax.
Does Washington tax capital gains for expats?
Yes, if you remain a Washington resident. Washington's 7% capital gains tax applies to long-term capital gains exceeding $250,000 per year, including gains from foreign investments. If you have terminated Washington residency, the tax does not apply.
Should I establish Washington domicile before moving abroad?
Washington is a good choice if you have no or modest capital gains, because there is no state income tax on wages. However, if you expect significant capital gains (over $250,000 per year), Florida, Texas, or Nevada may be better choices because they have no capital gains tax.
Need Help With Washington Tax Issues?
State residency termination is fact-specific. FileAbroad reviews your ties and recommends the right next step.