Washington State Long Term Care Program Taxes And Exemptions
Washington State Long Term Care Trust Act
The Washington State Long-Term Care Program should have the attention of every Washington state employer and employee. This little-known law mandates a tax on employee’s wages, to pay for long-term care benefits for Washington residents.
The tax/premium collections will start January 1, 2022. Those who plan to retire in the next 10 years will have to pay premiums, but may never qualify for the benefit. And there is a very short period of time to opt-out. The exemption window opens on October 1, 2021.
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What Is The Washington Long-Term Care Program?
The Washington Long-Term Care Program is the nation’s first public state-operated long term care insurance program. The Program (RCW chapter 50B.04) will be funded with a .0058 (0.58 percent) payroll tax on all employee wages, beginning January 1, 2022.
Employers must collect this assessment through after-tax payroll contributions and remit those premiums to the Washington State Employment Security Department (ESD). Employers are not required to contribute to the Program, but they must remit the employee-paid taxes.
Is There a Cap on the Amount of Taxed Wages?
Unlike other state insurance programs, there is no cap on wages. All wages and other compensation, including stock-based compensation, bonuses, paid time off, and severance pay, are subject to the tax. For example, an employee with wages of $75,000 will pay $435 toward the Program each year while an employee with wages of $300,000 will pay $1,740 yearly toward the Program.
Which Employees Are Subject to Tax/Premium Collections?
All employees in Washington must pay taxes into the Program. The exceptions are self-employed individuals, employees of a federally recognized tribe, certain collectively bargained employees, and employees who qualify for an exemption (see below).
The Program says an employee is treated as employed in Washington if the employee’s service is localized in Washington or, if the service is not localized in any state, the employee performs some services in Washington and the services are directed or controlled from Washington. This definition is like the Washington Paid Family and Medical Leave Program.
To date, we believe this means out-of-state employers must collect and remit premiums for any employees who primarily work in Washington.
Who Is Eligible to Receive Benefits?
Benefits are limited to Washington residents who have paid premiums under the Program for either:
- A total of 10 years without interruption of five or more consecutive years; or
- Three years within the last six years from the date the application for benefits is made. Also, to qualify, an employee must have worked at least 500 hours during each of the 10 years or each of three years, as applicable.
From a practical standpoint, this means that employees who plan to retire in the next 10 years have to pay premiums, but may never qualify for the benefits. And retirees who move out of state will not qualify for the benefits.
What Are the Benefits Under the Program?
Benefits under the Program will become available January 1, 2025. If eligible, and if the Department of Social and Health Services determines that an individual needs help with at least Three Activities of Daily Living, the Program pays benefits up to $100 day, with a lifetime limit of $36,500.
Can Employees Opt Out of the Program?
Yes, as described in the proposed rules, an employee may opt out of the Program and its taxes and benefits if:
- The employee is 18 years old or older on the date he or she applies for the exemption, and
- The employee attests that he or she has other long-term care insurance as defined in RCW 48.83.020.
To opt out, the employee must provide identification to verify his or her age and must apply for exemption with ESD between October 1, 2021, and December 31, 2022. If approved, an employee’s exemption will be effective for the quarter immediately following approval. Once an employee opts out, the employee cannot opt back into the Program. The opt-out is permanent.
When Must the Employee Have Long-Term Care Insurance in Place to Opt Out?
Currently, an employee may buy other qualifying insurance at any time before the opt out exemption period ends on December 31, 2022. But, the Washington Legislature is currently considering two amendments that may shorten this time frame.
If HB 1323 passes, only employees who buy other long-term care insurance before the effective date of HB 1323 (likely July 24, 2021, unless extended by special session) would be eligible for the exemption. While HB 1323 looked well-positioned to pass, a new amendment introduced by Senator Muzzall seeks to extend the deadline until December 31, 2021.
Because it is possible that HB 1323 may pass and the amendment extending the deadline to December 31, 2021, may fail, employees looking to opt-out should assume they may be subject to a deadline of July 24, 2021, and thus need to find an insurer before that date to approve them for a private long-term care insurance policy. This puts employees on notice that they have a very short window to buy long-term care insurance.
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Opting Out of The Washington State Long-Term Care Program
After an employee’s application for exemption is processed and approved, he or she will receive an approval letter from ESD. The employee must provide this approval letter to his or her employer. Employers must maintain copies of any approval letters received.
If an exempt employee fails to provide the approval letter to their employer, the employer must collect and remit premiums beginning January 1, 2022. An employee is not entitled to a refund of any premiums collected before the employee’s exemption took effect or before the employee provided the approval letter to their employer.
What About Employees Who Move Out of State?
Because benefits are limited to Washington residents, employees who move out of state will not be eligible to receive benefits under the Program. Employees who maintain a second home will want to consider which location will be their permanent residence.
Self-employed individuals are exempt from the Program but may choose to opt in. Under the Program, self-employed individuals must elect coverage by January 1, 2025, or within three years of becoming self-employed for the first time.
The information provided above is condensed from the article written by Christine C. Hawkins and Richard Birmingham of Davis Wright Temaine LLP, site accessed 04/01/2021