What's Covered in This Advisory
- 1. What Is SB 6346? Key Provisions Explained
- 2. Your Real Dollar Exposure
- 3. The Cumulative Tax Burden on High Earners
- 4. Five Life Insurance Strategies to Reduce Your Exposure
- 5. Your Planning Timeline — Why 2026 Is the Year to Act
- 6. How First Underwriters Can Help
- 7. Request Your Free Tax Exposure Review
What Is SB 6346? Key Provisions Explained
Senate Bill 6346, signed March 12, 2026, creates Washington's first personal income tax in nearly 100 years. The bill passed the House 51–46 after a 24-hour marathon debate and passed the Senate 27–22. Governor Ferguson called it "historic progress in rebalancing our unfair system."
| Provision | Details |
|---|---|
| Tax Rate | 9.9% on all personal income above $1 million |
| Who Pays | Individuals and married/domestic partner households with combined income over $1 million |
| Income Covered | Wages, salaries, business pass-through income, investment income, capital gains |
| How It Works | Only income above the $1M threshold is taxed — a $1.5M earner pays 9.9% on $500,000 only |
| Effective Date | January 1, 2028 |
| First Collections | 2029 (on calendar year 2028 earnings) |
| Estimated Filers | Approximately 21,000 Washington households — less than 0.5% of taxpayers |
| Planning Window | 2026–2027 — strategies must be in place before January 1, 2028 |
Opponents argue the tax may violate Washington's constitutional requirement for uniform taxation, and legal challenges are expected. However, planning should proceed on the assumption this tax takes effect as written. Most strategies take 12–24 months to fully implement — waiting for legal clarity may mean missing the window entirely.
Your Real Dollar Exposure
The impact of SB 6346 varies significantly by income level. Here is what the new tax means in real dollars for Washington households:
| Annual Household Income | Income Over $1M Threshold | New Annual WA State Tax |
|---|---|---|
| $1,250,000 | $250,000 | $24,750 |
| $1,500,000 | $500,000 | $49,500 |
| $2,000,000 | $1,000,000 | $99,000 |
| $3,000,000 | $2,000,000 | $198,000 |
| $5,000,000 | $4,000,000 | $396,000 |
| $10,000,000 | $9,000,000 | $891,000 |
If you own an S-Corporation or LLC with pass-through income, your share of business profits counts toward your household income. A business generating $2 million in pass-through income to a single owner creates $99,000 in new annual state tax — every year beginning in 2029. Planning now can materially reduce that obligation.
The Cumulative Tax Burden on High Earners
SB 6346 is the latest addition to several revenue measures enacted in recent years. Together, they create a combined effective rate that can exceed 50% for top earners:
| Tax | Rate / Details |
|---|---|
| Federal Income Tax (top bracket) | 37% on income over ~$609K (single) / ~$731K (married) |
| Federal Net Investment Income Tax | 3.8% on investment income for high earners |
| WA Capital Gains Tax | 9.9% on capital gains over $1 million (enacted 2025) |
| WA Millionaires Tax — NEW | 9.9% on all income over $1 million (effective 2028) |
| WA B&O Tax (business owners) | Varies by classification, up to ~1.8% on gross receipts |
| Combined Effective Rate (est.) | Potentially 50%+ on income above $1 million |
For Washington business owners and investors, tax strategy is no longer optional — it is a fundamental part of financial planning. The strategies that worked in a zero-income-tax state need to be revisited.
— First Underwriters Insurance Brokers, March 2026Five Life Insurance Strategies to Reduce Your Exposure
Life insurance is one of the most powerful and underutilized tools available to high earners for legally reducing taxable income. The right structure can defer growth, shield assets from income tax, and provide meaningful protection — simultaneously. Here are the five strategies we most frequently recommend for clients affected by SB 6346.
Indexed Universal Life (IUL)
An IUL policy builds substantial cash value linked to a market index (such as the S&P 500) with downside protection through a guaranteed floor. Growth is tax-deferred, and distributions via policy loans can be structured as permanently income-tax-free — shielding assets from both federal income tax and the new 9.9% WA state tax.
Key Benefits
- Cash value growth is tax-deferred — no annual income taxes on gains inside the policy
- Policy loans and withdrawals structured as income-tax-free
- Death benefit passes to beneficiaries income-tax-free
- No capital gains tax on internal investment growth
Business owners and executives seeking to redirect income into a tax-advantaged accumulation vehicle while building a tax-free retirement income stream.
Private Placement Life Insurance (PPLI)
PPLI is a variable universal life product available to accredited investors that places institutional-quality investment strategies inside a life insurance tax wrapper. Particularly effective for high earners with large investment portfolios who want to shield investment income from the new state tax.
Key Benefits
- Tax-deferred growth shields investment income from the 9.9% WA Millionaires Tax
- Access to hedge funds, private equity, and alternative strategies inside the policy
- Income-tax-free distributions via policy loans in retirement
- Death benefit passes outside of probate, income-tax-free
High-net-worth individuals with significant investment portfolios seeking to reduce annual taxable investment income, including capital gains.
Business-Owned Life Insurance (BOLI)
Business owners can leverage BOLI to move compensation and benefits outside the scope of personal taxable income. This strategy is particularly effective for S-Corp and LLC owners whose pass-through income places them above the $1 million threshold.
Common Structures
- Executive Bonus Plans (Section 162): Business bonuses a life insurance policy — deductible to the business, tax-advantaged benefit for the owner
- Split-Dollar Arrangements: Employer and employee share premiums and death benefit, deferring personal income recognition
- Non-Qualified Deferred Compensation (NQDC): Defer income beyond 2027 using a BOLI policy to informally fund the liability
S-Corp and LLC owners with pass-through income exceeding $1 million seeking to restructure compensation before the 2028 effective date.
Irrevocable Life Insurance Trust (ILIT)
An ILIT holds a life insurance policy outside your taxable estate, allowing the death benefit to pass to heirs free of both income and estate taxes. For Washington's highest earners, an ILIT also removes policy cash value from the taxable income calculation entirely.
Key Benefits
- Policy cash value removed from your taxable income picture
- Death benefit passes to heirs income-tax-free and estate-tax-free
- Potential creditor protection for policy assets
- Coordinates with GRATs, CRTs, family LLCs, and other estate vehicles
High earners focused on multi-generational wealth transfer and removing assets from both their taxable income and taxable estate.
Charitable Planning with Life Insurance
Charitable giving can reduce your taxable income annually while building a meaningful legacy. Life insurance structures amplify the impact of charitable planning for high earners.
Common Structures
- Charitable Remainder Trust (CRT): Donate appreciated assets to the trust, receive an income stream, and use life insurance to replace value for heirs — the charitable deduction offsets taxable income
- Charitable Life Insurance Policy: Gift a premium-paid policy to a charity for an immediate tax deduction each year
Philanthropically-minded high earners who want to generate meaningful annual deductions that reduce income subject to the 9.9% WA Millionaires Tax.
Your Planning Timeline — Why 2026 Is the Year to Act
Many of these strategies require 12–24 months of lead time. Life insurance policies must be underwritten and funded. Trust structures require legal formation. Compensation restructuring must comply with IRS timing rules. With the tax effective January 1, 2028, your window is now.
Even if the tax faces court challenges, planning should begin now. Legal proceedings typically take years to resolve, and the downside of being unprepared far outweighs the cost of implementing strategies that provide benefits regardless of the tax outcome — including tax-deferred growth, estate planning, and retirement income.
How First Underwriters Can Help
First Underwriters Insurance Brokers has served Washington State business owners and high-net-worth clients since 1992. Our team brings deep expertise in both commercial risk management and financial protection strategies, with access to 50+ A-rated carriers.
50+ A-Rated Carriers
We represent more than 50 A-rated insurance carriers, giving us access to the broadest range of life insurance products across all five strategy types. Broad market access
Full Advisor Coordination
We work in close coordination with your existing CPA, estate attorney, and financial advisors to ensure every strategy is properly integrated into your overall plan. Team approach
Guard Legacy Partnership
We partner with Guard Legacy, a financial advisory firm co-founded by Michael Oskouian, specializing in wealth protection and succession planning for business owners aged 50–72. Complete advisory solution
34 Years Serving Washington
Founded in 1992, First Underwriters has a long-standing track record with Washington's business owners and high-net-worth individuals. Michael Oskouian holds MBA, ARM, CRM, CIC, and LUTCF designations. Deep local expertise
This advisory is provided for general informational purposes only and does not constitute legal, tax, investment, or financial advice. All life insurance and tax mitigation strategies should be reviewed with a licensed attorney, CPA, and financial advisor in the context of your individual circumstances. SB 6346 is subject to potential legal challenge; implementation timelines may vary. First Underwriters Insurance Brokers is a licensed insurance brokerage. Past results do not guarantee future outcomes.
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Complete the form below to receive your complimentary Washington Millionaires Tax Exposure Review. A First Underwriters advisor will contact you within one business day to discuss your specific situation and recommend appropriate strategies.
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