Plan now for Washington’s new long-term care tax

April 30, 2021

BIAW’s Benefits Administrator, EPK Benefits, recently shared the following details about a new payroll tax scheduled to be collected from all employees beginning Jan. 1, 2022.

 

What is the WA LTC Tax?

In May 2019, the Washington State Legislature passed the Long-Term Services and Supports (LTSS) Trust Act mandating a payroll tax for ALL Washington-based employees in order to fund a benefit covering long-term care expenses.

Funding begins in January 2022 by collecting a 0.58% payroll tax on all income (with no income limit). The tax is paid entirely by the employee, although an employer has the option to pay it for employees. The tax percentage may change in future years.

What is the benefit/coverage?

Those who pay into the system for 10 years AND who remain in Washington state may receive up to $100 per day, up to $36,500 lifetime maximum, in LTC benefits. Such benefits require a physician to prescribe support for daily activities such as bathing, dressing, eating, etc. The benefit can support expenses for in-home care or assisted living facility care. Claims for LTC benefits may begin in January 2025.

 

Opting Out of the LTC Tax

As stated earlier, the tax is mandatory on all Washington-based employees. However, employees have a one-time opportunity to permanently opt-out of the State LTC program if they prove that they have purchased an individual LTC policy.

To opt-out, employees must:

• Purchase a private LTC policy before Nov. 1, 2021; and
• Apply for the exemption between Oct. 1, 2021 and Dec. 31, 2022.

The opt-out process may make sense for the following types of individuals:

• Higher wage earners: Since the tax is $580 annually for every $100,000 of income, those earning above $150,000 are more likely to find a private plan with a better cost-benefit trade-off than the Washington state program.
• Younger workers with relatively high earning: Paying the state tax for multiple decades, while anticipating higher income in the future, may tip the scales in favor of a private policy and LTC premiums are lower the younger you start a policy.
• Those who are likely to move outside of Washington in retirement: The Washington state program does not pay benefit outside of Washington state. Most private policies are portable.
• Those who are planning to retire in <10 years:  The Washington State program has a 10 year vesting period and these individuals may only be eligible to receive a limited benefit from the LTC program.

 

Recommended Employer Actions

Inform employees about the new WA LTC program and the tax to begin January 1, 2022.

Employees who want to explore a qualifying opt-out individual LTC policy should contact their personal financial advisor or potentially an agent who sold them a life insurance policy. They may be able to add an LTC rider to an existing permanent life insurance policy.

For employers who wish to provide employees with a resource to support their evaluation of the opt-out decision, the American Association for Long-Term Care Insurance offers education and a link to request a no-obligation quote for coverage.

 

Free webinar May 18

BIAW is also encouraging members to attend a webinar led by experts from Washington Long term Care, LLC, to provide additional details about the Washington State Long Term Care Act (HB1087) for Building Industry Association of Washington. This free webinar will be at 2 p.m. on May 18 via Zoom. Register here.