Retiring in Washington: no tax on the income, so the property tax bill is the subject

A retiree in Washington pays no state tax on any income, because the state has no income tax, and files nothing with the state in April. The federal return is the whole return, and the IRS taxes a Spokane retiree exactly as it taxes the same person anywhere else: up to 85% of Social Security by the provisional-income formula, pensions and IRA withdrawals as ordinary income, and Medicare premiums set by the income on the return two years back. The state’s contribution to a retiree’s finances is on the property tax bill. From age 61 a homeowner whose income is under the county’s limit can apply to the county assessor for an exemption that freezes the home’s taxable value, removes the state school levy and every voter-approved levy, and for lower incomes takes a large slice of value out of the regular levies as well. The 2026 Legislature widened that program for taxes collected in 2027.

Two Washington taxes a retiree can still meet. The capital gains excise tax reaches long-term gains in a taxable brokerage account above a deduction of $278,000 for 2025 (2026 to come), but not gains inside an IRA, 401(k) or Roth, and not the sale of a house. The estate tax reaches estates above $3,000,000 gross, counting the house, the retirement accounts and life insurance, with no portability between spouses. Neither shows up on an annual return; both deserve a look once.

What is not taxed

The federal senior deduction, $6,000 per person 65 and older for 2025 through 2028, has no Washington counterpart because there is nothing for it to reduce. The same is true of the federal deductions for tips and overtime: they lower federal taxable income and change nothing in Washington.

Roth conversions while you live here

A Roth conversion is taxed federally in the year it is done, and in Washington it is taxed never. For a retiree who spent a career in a state with an income tax and moved here, the conversions put off because of state tax can now be done at the federal cost alone. For a retiree thinking of leaving Washington for a state that taxes retirement income, the order is the other way around: convert before the move, while the state cost is zero. The federal arithmetic, filling the 12% and 22% brackets before RMDs begin at 73 or 75, watching the IRMAA thresholds two years ahead, is in The Roth IRA guide; the Washington part of the arithmetic is one line, and the line is zero.

The federal items that still bite

Because Washington adds nothing to the income tax, a retiree’s whole tax life is the federal return, and two federal mechanisms matter more here than people expect. The first is Medicare’s income-related monthly adjustment amount, IRMAA, which raises Part B and Part D premiums for a couple whose modified adjusted gross income two years earlier exceeded a threshold near $218,000. A large Roth conversion or a big capital gain in 2026 raises 2028 premiums. The second is the taxation of Social Security, which pulls up to 85% of benefits into income once provisional income passes $44,000 for a couple, a figure that has never been indexed. Neither has anything to do with Washington; both are the price of income that is otherwise state-tax-free.

Withholding is the practical point. With no state withholding on a pension, a Washington retiree’s only withholding is whatever the custodian takes for the IRS, and a household living on Social Security, an IRA and a brokerage account with nothing withheld meets the federal underpayment penalty in April unless it pays estimates or has tax withheld from the IRA withdrawal. The simplest fix is to have the IRA custodian withhold enough in December to cover the year; withholding counts as paid evenly through the year, estimates do not. Form W-4P sets the pension withholding, Form W-4R a one-time withdrawal, and the state election on both is none.

The property tax exemption at 61

The Senior Citizens and People with Disabilities Property Tax Exemption is Washington’s age break, and it runs through the county assessor, not any return. A homeowner qualifies who is 61 or older by December 31 of the assessment year, or 57 and the surviving spouse or partner of someone who had the exemption, or unable to work because of a disability, or a veteran with an 80% or higher service-connected rating or paid at the 100% rate. The applicant must own the home and live in it more than six months of the year; a stay in a hospital or nursing home does not break occupancy. Only one joint owner need meet the age test.

The income test is the gate, and it counts nearly everything: combined disposable income of the applicant, spouse and any co-tenants, including Social Security, pensions, the taxable part of IRA withdrawals, interest, dividends, capital gains and military pay, whether or not the federal return taxes it. The limits are set per county as a share of the county’s median household income, recalculated every three years, and for taxes collected in 2026 the three tiers are 50%, 60% and 70% of the median. ESSB 6162, effective June 11, 2026, raises them to 60%, 70% and 80% for taxes collected in 2027 and after, and replaces the old itemized medical deductions in the income test with a flat $7,500 standard deduction for the applicant and another $7,500 for a spouse. The county dollar figures are posted by the Department at dor.wa.gov/incomethresholds and vary widely; in King County the top tier is far higher than in Pend Oreille County.

Every tier gets two things: the taxable value of the home is frozen at the first year of eligibility, and the state school levy and all voter-approved excess levies come off the bill. The lower two tiers also take value out of the regular levies: for 2027, tier 1 exempts the greater of $80,000 or 80% of the home’s value with no cap, up from $60,000 or 60% in 2026, and tier 2 exempts the greater of $70,000 or 45% of value, capped at $200,000 of value, up from $50,000 or 35% capped at $70,000. For a retiree on Social Security and a modest pension in a $600,000 house, tier 1 can remove most of the bill. The application is due to the assessor by December 31 of the assessment year, late applications are accepted, and the assessor sets the renewal schedule. The full mechanics, including the separate deferral program, are in Property tax relief in Washington.

The brokerage account and the capital gains tax

A retiree drawing down a taxable brokerage account can meet Washington’s capital gains tax, though most do not. It applies to federal net long-term capital gain above the standard deduction, $278,000 for 2025 with the 2026 figure to come, at 7%, and at 9.9% on taxable gain above $1,000,000. Gains inside an IRA, 401(k) or Roth are exempt, and so is the sale of the house. A retired couple selling $200,000 of appreciated mutual funds a year to live on will never reach it. A retiree selling a long-held concentrated stock position, or a business, can. The deduction is one per couple, so splitting a sale across two spouses does not double it; spreading a sale across two tax years does use two deductions. The details are in Washington’s capital gains tax.

The estate tax

Washington’s estate tax is the state tax most likely to surprise a retired couple who have never thought of themselves as rich. The threshold is $3,000,000 for deaths on or after July 1, 2026 and through 2027 ($3,076,000 for deaths in the first half of 2026), measured on the gross estate: the house at market value, every retirement account, life insurance payable to the estate or owned by the decedent, and the brokerage account, before debts. The federal threshold is far higher, so a Washington estate can owe the state and nothing to the IRS. Rates on the taxable amount above the exclusion for deaths from July 1, 2026 run 10% on the first $1,000,000, then 14%, 15%, 16%, 18%, 19%, 19.5% and 20% above $9,000,000. There is no inheritance tax and no gift tax, and lifetime gifts are one of the ordinary ways to bring an estate under the line. Washington does not let a surviving spouse carry over the first spouse’s unused exclusion, so a married couple with $5,000,000 who leave everything to each other may waste the first exclusion; a trust at the first death, or the state-only QTIP election, keeps it. A retiree whose house and accounts together approach $3,000,000 should have a Washington estate planner look at it.