Beginning on Jan. 1, 2022, employees working in Washington state will be required to pay a payroll tax via mandatory payroll deduction, unless they choose to opt-out.
This new payroll tax will be used to fund a state-run, long-term care (LTC) insurance program for Washington citizens, named The WA Cares Fund. The fund was established to help minimize the potential burden long-term care expenses can place on Washingtonians by creating a lifetime benefit amount that vested workers can use to pay for care. Individuals who earn income in Washington as W-2 employees will be impacted by this new tax.
The Facts
What is the tax and is there a cap on the tax?
- The tax is currently set at 58 cents per $100 of earnings and will be deducted each pay period.
- Every employee contributes – employers do not.
- There is no cap. All wages, including bonuses, paid time off (vacation, sick and holiday time), severance, etc. are subject to the tax.
When will the benefit begin and what is the benefit?
- Beginning on Jan. 1, 2025, eligible workers who need long-term care can begin to access their WA Cares Fund benefits.
- Individuals will have access to $100/day, up to a lifetime benefit of $36,500 that will be adjusted annually for inflation.
Who is eligible for benefits?
- The Employment Security Department (ESD) will determine all eligibility and entitlements for the new benefits.
- To receive benefits a person must:
- reside in Washington state
- receive care in Washington state
- need assistance with at least three activities of daily living
- have worked and paid into the fund for:
- a minimum of 10 years without a break of five or more years;
OR
- three of the previous six years at the time they apply for the benefit, and
- worked for at least 500 hours per year during those years
Can an employee “opt-out” of the state-mandated program?
- Employees may choose to opt-out of the new mandatory deduction by purchasing their own long-term care insurance policy (if they don’t already have one) and then applying for and being approved for an exemption by the ESD.
- To qualify, employees must purchase their private policy before Nov. 1, 2021. Exemption applications will be available starting Oct. 1, 2021. ESD can only accept exemption applications through Dec. 31, 2022.
- The private policy must provide for equal or better benefits than those available through the WA Cares Fund.
Considering Opting Out?
The following are some questions to ask yourself when deciding if it makes sense for you to opt-out of the WA Cares Fund:
Do you plan to retire within the next 10 years?
To qualify for benefits, you must have worked and contributed to the fund for:
- At least 10 years without a break of five or more years within those 10 years, or
- Three of the last six years at the time you apply for the benefit.
Are you planning to retire elsewhere?
Benefits are only available to Washington residents receiving care in Washington.
Do you want coverage for a non-working spouse?
Benefits only apply to the contributing employee.
Are you a high earner/dual-income household?
Highly compensated employees will contribute more based on their earnings, yet they will only be eligible to receive the same lifetime benefit of $36,500 (indexed for inflation) as all other employees. You most likely can find an overall better policy at a lower cost than your estimated additional payroll tax.
Are you a young worker?
If you work for another 20-30 years, how much will you have paid into the fund compared to the lifetime benefit of $36,500 as indexed for inflation?
Do you need LTC Insurance?
Will your future earnings/savings allow you to be “self-insured?”
Are you currently self-employed but may return to the workforce as a W-2 employee?
There is only one opt-out period. And opting out is a permanent decision. You cannot opt-out this year and then later change your mind.
Who Should Consider Not Opting Out?
Everyone’s situation is different, but there are two main reasons for not opting out:
- Existing health conditions prevent you from purchasing a LTC policy on your own.
- Low/average income earner – The potential benefit is greater than the lifetime mandatory payroll tax.
Next Steps & Resources
If you do decide to opt-out of the tax, you have one chance to do so. For additional information, please check out the following resources:
https://www.insurance.wa.gov/long-term-care-insurance
https://responsiblefuture.org/the-ltc-trust-act/
https://esd.wa.gov/newsroom/rulemaking/ltss
Kaylee Brown is the HR director at Opsahl Dawson CPAs. She can be reached at kaylee@opsahlco.com.
