Washington Long-Term Care Payroll Tax Effective January 1, 2022
August 17, 2021
WA Cares Fund is Washington State’s new government-run long-term care (LTC) insurance program. Originally established in May 2019 by the Long-Term Services and Supports (LTSS) Trust Act, the taxation phase of the program will go into effect at the beginning of next year, however, it will not begin paying benefits until 2025. According to the Washington State Department of Social and Health Services, “The WA Cares Fund both protects our workers against the economic and social risks of needing long-term care as they age and better positions the state to cope with the fiscal and economic costs of the coming age wave and long-term care challenge.”
The program is funded through a payroll tax that goes into effect on January 1, 2022. All employees working in Washington State, regardless of their state of residence, will be subject to a 0.58% withholding per $100 of earnings, with no cap on income paid. Employers will be responsible for withholding this tax and remitting funds to the Washington Employment Security Department (ESD). Reporting will be through the same system as Washington’s Paid Family & Medical Leave program; employers who do not have wages or hours to report for a quarter will not need to file a report.
Substitute House Bill 1323, passed in April 2021, now allows individuals to apply for an exemption from the Fund if they have an existing long-term care insurance plan or purchase a new policy that must be in place before November 1, 2021. Exemption applications must be completed between October 1, 2021 and December 31, 2022. Under current law, once individuals opt-out, they are not able to opt-in in the future, even if they change jobs.
To avoid the payroll tax deduction, employees are required to notify their employer of their approved exemption and provide the approval letter to discontinue the payroll deduction. Employers should maintain these approval letters in their employee files. It is important for employees to understand any prior deductions withheld are non-refundable.
Starting January 1, 2025, individuals who are eligible to receive benefits from the Fund will be able to access services and support. The WA Cares Fund provides eligible Washington workers who pay into the program and receive care in Washington with LTC benefits up to a maximum of $36,500 per person, regardless of how much they paid in. This is a lifetime cap, adjusted annually for inflation.
Self-employed individuals—including sole proprietors, joint venturers, independent contractors, and others—may choose to opt-in to the WA Cares Fund, but they are not required to participate. Opt-in applications will be available January 2022.
Employers are still able to offer private LTC insurance to their employees, but in such cases, it is the responsibility of the employees, not their employers, to apply for the opt-out exemption if they do not want double coverage.
There are a number of issues with the law as it currently stands, such as the vestment period for soon-to-be retirees who will begin paying in 2022 but will retire before benefits begin in 2025. Another potential issue is how to address objections by out-of-state workers who will be taxed but will not be eligible for the benefits if they continue to live outside Washington state.
At Geffen Mesher, we will continue to monitor the proposed changes to RCW 50B.04 currently being developed by The Long-Term Services and Supports Trust Commission to address these and other issues. In the meantime, employers should review the WA Cares Fund Employer Toolkit to see the timeline of the programs and additional resources.
Our state and local tax (SALT) professionals are available to assist if you have questions about this new payroll tax. Please contact our SALT Team at SALT@GMCO.com.