By now, you’ve probably heard about the controversial new Washington State Employee Payroll Tax Law for Long-Term Care Benefits (the WA Cares Fund). This law could have serious implications for you or someone you know. The purpose of this post is to add some much-needed clarity to the situation while letting you know what you can do to opt out of this tax, if that’s your preference.
If you haven’t heard about this tax, here’s the executive summary:
This new tax will go into a reserve that will pay long-term care expenses for people who don’t have private long-term care insurance in the state of Washington.
Point 1: This will take 0.58% of a W-2 employee’s paycheck and divert it to the WA Cares Fund.
Point 2: This deduction is automatic and applies only W-2 employees in the state of Washington.
Point 3: Retired residents in Washington State who don’t have private long-term care insurance are the only people eligible to take advantage of the WA Cares Fund.
Point 4: W-2 employee can choose to opt in or opt out of the tax. I explain how to opt out at the end of this article/blog/email.
NOTE: If you need clarification on the terms used in this bill, the FAQ at the end of this post will bring you up to speed.
Here’s my take on the WA Cares Fund:
I like to think of it this way. This is a forced reduction in pay for every W-2 employee. These may seem like strong words but hear me out. For people who are low income or who have significant health challenges, WA Cares is a good option. However, it’s not a good option for middle income people and those who earn more, that is, people making over $75,000 per year. Not long ago, I heard a report on KING 5 News about this tax and its impact. The reporter said that anyone with a moderate income or higher would be better off buying a long-term care policy. The benefits of a private policy are likely to be more than the WA Cares coverage.
Here’s how I see it. First, I think that a person who makes $50,000 a year would be better off buying private long-term care insurance. Why, you ask? It’s like my favorite kind of candy. There’s a $1 option and a $5 option. The $1 option tastes okay, but the $5 option (made of organic, locally sourced ingredients), tastes much better. I would rather spend the $5 to get what I really want—a great tasting treat—than spend $1 on a cheap imitation that’s not nearly as satisfying.
It’s the same with insurance. If you hate spending money on junk and would be open to spending a bit more on something that has real value, then getting a personal long-term care insurance policy makes a lot more sense.
I truly believe that the purpose of the tax is to box people into making a decision about long-term care insurance. My guess is that they hope that more people choose it than don’t. There will be many legal challenges to this law, and it is very likely that it will be overturned. For example, though there is an opt out provision for those who buy a private long-term care insurance policy, insurance companies do not issue these policies to those under 40, which means that there is no real choice for those under 40. Similarly, the benefits will only be good in Washington State though the currency used to buy the benefits is good throughout the world. That’s just the tip of the iceberg. There are many more problems with this law, and the constitutional challenges will be many.
My advice? Look at what a private policy would cost you. I understand that New York Life has a policy that beats the tax for those who are young. This policy may be worth considering. Other companies offer similar policies. If you get stuck paying the tax, you can opt out at least until December 2022 by buying a long-term care policy.
The bottom line: If you make more than $100,000 a year, your interests will be better served by a private long-term care policy. It will almost certainly be better coverage and it will cost you far less in the long run.
If you have any questions, please do not hesitate to call our office at (253)-941-7200. You can also call our state officials for assistance. Thank you for your time, and AgeOn!
Further questions can be answered below.
What is Long-term care?
Long-term care (LTC), as defined by Washington State law, is an insurance policy, contract or rider that provides coverage for at least 12 consecutive months to an insured person if they experience a debilitating prolonged illness or disability. Long-term care insurance typically covers the following types of services if they’re provided in a setting other than a hospital’s acute care unit:
- Personal care
LTC insurance typically pays benefits when an insured person can no longer independently do two or more of the following activities of daily living (ADLs):
- Go to the bathroom
- Transfer (such as getting out of a chair or bed)
- Control their bladder or bowels (continence)
For more information about what long-term care is, please visit our State’s website at www.leg.wa.gov or contact our office at (206)-941-7200. Thank you.
What is the new state employee payroll tax for long-term care benefits?
Washington State is launching a new tax that will begin on January 1, 2022 to fund a state-wide long-term care plan for Washington elders. All Washington State employee wages (those employees who work in Washington, receive wages reported on a Form W-2, and work at least 500 hours per year) are subject to a 0.58% payroll tax. For example, $0.58 tax assessment on every $100 of eligible wages. There is no cap on this new tax. This tax is paid by employees. To see a breakdown of how the 0.58% can affect your paycheck, please look at this photo provided by Coldstream Wealth Management.
The State Employee Payroll Long-Term Care Tax creates a publicly funded long-term care benefit for Washingtonians that provides a basic level of long-term care protection for working residents. Beneficiaries will receive a $36,500 lifetime benefit, provided that they are no longer working and they are the legal Washington-retired-stated age.
Who does the new tax apply to?
The new tax applies to all W-2 current employees in the state of Washington. Some residents will be exempt from the tax, including 1099 employees, part-time workers, those who are self-employed, and business owners. Individuals that want to partake in this tax and obtain the benefits at the point of personal retirement can apply for the WA Cares benefit.
Who should opt out?
AgingOptions recognizes the issues many may have with this tax, and therefore are recommending that some opt out of this tax. According to King 5 News, “for those who make $75,000 or more or plan to at some point in their careers, it’s likely better to get a private policy now to get exempt from the payroll tax”. We argue that people earning $50,000 or more should look into private long-term care insurance. If you are unsure if you will live in Washington State when you retire, and if you have or are looking for your own private long-term care plan, it would be wise for you to opt out of paying this tax. Individuals that own a private long-term care insurance policy can permanently opt-out of the program by applying for an exemption with their employer for a limited amount of time.
How can I opt out of this tax?
To opt out of this tax, you must:
- Be 18 years of age
- Have purchased a qualifying private long-term care insurance plan before Nov. 1, 2021. Learn more about qualifying plans on the Office of the Insurance Commissioner’s website.
- Submit an exemption application to the Employment Security Department (ESD). Exemption applications will be available starting Oct. 1st, 2021 and will be accepted until December 31st, 2022.
- Please note that the private long-term care plan needs to be purchased BEFORE November 1st, 2021 in order to qualify.
The exemption to opt out of the program is a limited time opportunity. To qualify for an exemption, an employee must have purchased a long-term care policy by November 1, 2021 and attest that they have a comparable long-term care insurance policy. The process for this exemption is still a work in progress, but we think it will be the following:
A. Purchase a long-term care (LTC) policy by November 1, 2021.
B. Go to a Washington State website (URL TBD) to get the exemption to the LTC payroll tax.
C. The LTC policy must be a 7702B Policy.
D. The state will issue a letter for the exemption (we call the “golden letter”).
E. The employee provides the “golden letter” to HR/payroll to avoid the LTC payroll tax.
Who should I go to about a private insurance plan for long-term care?
- Here is a list of three companies where you can purchase great and private long-term care insurance plans brought to you by one of AgingOptions Certified Financial Planners, Saket Sengar:
- A. New York Life Insurance, Agent – Inderpal Singh, 206-334-7759.
- B. Pacific Life Insurance, Agent – Houston Cagle, 206-305-7582.
- C. Lincoln Life Insurance, Agent – Kevin Forman, 206-406-0044.
What if I have more questions about the new state employee payroll tax for long-term care benefits?
If you have any further questions, please do not hesitate to contact our office at (253)-941-7200 for assistance. Thank you!
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