Washington lawmakers passed a package of business and occupation (B&O) tax changes this year that includes real relief for small businesses — a higher filing threshold and a bigger small business credit. The catch: none of it takes effect until January 1, 2029, and even then only if the state’s new income tax survives a legal challenge that’s still working its way through the courts.
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What happened
Under Engrossed Substitute Senate Bill 6346 (Chapter 238, Laws of 2026), Washington’s B&O tax return filing threshold will double from $125,000 to $250,000 in annual taxable income, according to tax alerts from Grant Thornton and Anrok. The bill also raises the small business B&O tax credit, which currently zeroes out B&O liability for the smallest filers: the credit rises to $125 per month for nonservice businesses and $375 per month for service businesses.
Both changes are dated January 1, 2029 — and per Grant Thornton’s alert, that relief “will be null and void if a court of final jurisdiction invalidates the Washington income tax.” Washington enacted a new income tax on high earners as part of the same broader 2026 tax package, and that tax is expected to face constitutional challenges given the state’s long-standing prohibition on taxing net income. If it doesn’t survive that fight, the B&O relief tied to it doesn’t happen either.
Separately, ESSB 6346 also created a new B&O surcharge — 0.5% on Washington taxable income above $250 million — effective this year, though the state carved out exemptions for hospital revenue, prescription drug warehousing, licensed health care providers, and wholesale food sales starting July 1, 2026, per Washington’s Department of Revenue.
Why it matters
The current $125,000 filing threshold and smaller credit amounts have long meant that even very small Washington businesses — sole proprietors, side hustles, part-time service providers — end up owing B&O tax or at least filing a return. Doubling the threshold and tripling-plus the service-business credit would meaningfully shrink that group. But because the relief is bundled with the income tax and pushed out nearly three years, business owners can’t bank on it changing their 2026, 2027, or 2028 filings.
What this means for Washington small businesses
Don’t adjust your bookkeeping or registration plans based on the 2029 numbers yet — the current $125,000 threshold and existing credit amounts remain in force until then, and only if the litigation over the income tax resolves in the state’s favor. If you’re near the current threshold, keep filing and tracking B&O liability under today’s rules. It’s worth flagging this bill to your bookkeeper or CFO now so it’s on the radar for a 2028 review, rather than something that catches you off guard if and when it actually takes effect.
“[The relief provisions] will be null and void if a court of final jurisdiction invalidates the Washington income tax.” — Grant Thornton tax alert, July 16, 2026
The bottom line
Washington did pass real B&O tax relief for small businesses this year — but it’s relief with an asterisk, both in timing and in its dependence on a separate legal fight over the state’s new income tax. Track it, but don’t plan around it until it’s actually law in practice, not just on the books.
