Washington’s new long-term care payroll tax.
What is it for and how much will it cost?
Starting January 1, 2022, employees in Washington State will begin paying a new payroll tax of 0.58% of their wages, unless they opt out by purchasing a long-term care insurance policy and apply for the exemption between October 2021 – December 2022.
What follows is what we know currently, but the actual application of these new laws can’t fully be determined until the Employment Security Department finishes drafting the regulations related to the statutes.
What is the tax for?
This new tax will fund Washington’s new Long-Term Services and Support Trust Program, which is designed to be another source of funding for those in need of long-term care.
This source of funding will only be available to those who meet certain requirements, including but not limited to: (a) the person is a resident of Washington, (b) has paid into the program for the requisite amount of time, and (c) has been assessed as needing a certain level of assistance with activities of daily living.
Who has to pay?
All employees must pay these “premiums” (tax) into the program, unless they opt out (as explained below).
Can I opt-in if i’m not a W-2 employee?
Yes, it is not mandatory, but those who are self-employed (sole proprietors, independent contractors, partners, or joint venturers) may opt in. To opt in, those who are self-employed must file a “notice of election” in writing with the Washington Employment Security Department. After this notice, the person must pay premiums for the requisite amount of time in order to become eligible for benefits.
If this self-employed person later decides they no longer want to pay into the program, they will need to file a notice of withdrawal in writing with the Washington Employment Security Department.
How much will it cost?
Initially, each person will pay 0.58% of their wages. Although, this amount can be raised or lowered based on the amount necessary for the program to maintain solvency. However, starting on January 1, 2024 and biennially thereafter, the rate will reset to a rate of 0.58% or lower.
Who collects this tax?
It depends on whether you are an employee or self-employed. If you are an employee, your employer must collect the premiums and remit them to the government. If one is self-employed, and opts in, then the self employed person is responsible to pay the premiums directly to the government.
Now that the benefits are paid for, who qualifies to receive them?
Qualifying for benefits is a two-step process: (1) one must be a Qualified Individual, and (2) one must be an Eligible Beneficiary.
A qualified individual is a person that paid premiums into the program for the equivalent of either:
- A total of ten years without interruption of five or more consecutive years; or
- Three years within the last six years.
To qualify as having worked for a year, the individual must have worked at least 500 hours in the year.
To become an eligible beneficiary, a qualified individual must (1) be a Washington resident, (2) file an application with the Washington Department of Social and Health Services, and (3) undergo an evaluation of whether the individual requires assistance with at least three activities of daily living.
How soon could someone qualify for benefits?
As early as 2025. The quickest way for a person to qualify for benefits is to pay premiums for the first three years of the program and then meet the requirements to be an Eligible Beneficiary. Since the program starts collecting premiums January 1, 2022, the earliest one could be both a Qualified Individual and Eligible Beneficiary is January 1, 2025.
After paying and qualifying, what are the benefits?
An eligible beneficiary may receive services such as memory care, dementia support, transportation, home delivered meals, professional services, assisted living services, nursing home services, and other “Approved Services.”
Payments for these Approved Services will be made by the responsible state agency to qualified providers in benefit units (amounts up to $100 per unit).
Is there a limit to these benefits?
Each eligible beneficiary may receive a maximum of 365 benefit units over the course of a lifetime. With a benefit unit valued at $100, an individual may receive a maximum of about $36,500 over the course of a lifetime. Benefit unit value, must be adjusted annually.
The other limitation is the payment of these benefit units will only be paid to a qualified provider for the eligible beneficiary, not to the eligible beneficiary directly. A qualified provider includes a qualified family member and providers such as a licensed nursing home.
How do I opt-out?
If a person, wants to opt out, they must have a long-term care insurance policy and apply for an exemption between October 1, 2021 and December 31, 2022. The exemption application made to the Washington Employment Security Department, can only be made by those employees who are 18 years of age or older.
Please note, after becoming exempt from paying these premiums the person should notify all current and future employers of the approved exemption. Otherwise, those employers may continue to collect premiums from the persons’ wages, which may be lost to the government.
When purchasing a long-term care insurance policy, one should consult an insurance provider and review the Employment Security Department’s regulations to ensure the policy qualifies for the exemption.
If I opt-out can I change my mind later & opt back in?
No. After an individual becomes exempt, they are permanently ineligible for coverage under this program.
What does this mean for me? Should I opt-in or opt-out?
This is a personal decision dependent on individual circumstances and needs. It is recommended that you consult an attorney and insurance provider prior to making any decisions.
Here are a few questions to help you evaluate your desired action on this new tax:
- Do you plan to leave Washington State and retire out-of-state? (must be a Washington resident to become an eligible beneficiary).
- Do you plan to retire before you would become a qualified individual that could potentially benefit from the program?
- Can you secure long-term care insurance through a private company at a cheaper rate than you would pay in premiums to the government?
- Will long-term care insurance through a private company provide better coverage for your needs?
- Do you want to lock in your insurance premiums at a fixed rate with a private company, or are you comfortable with variable rates under this program?