Washington state legislature has passed the nation’s first public-operated long-term care insurance program. The Long-Term Care (LTC) Act goes into effect on January 1, 2022 and is a mandatory payroll tax that affects all employees residing in Washington, even if your employer is located out of state.
What is the tax?
The payroll tax is currently set at $0.58 per $100 of the employee’s wages, with no salary cap. Wages, including stock-based compensation, bonuses, severance pay, and paid time off are all subject to this tax. Self-employed persons are exempt from the tax but may enroll in the program if they choose.
What is the benefit?
The benefit will allow a maximum rate of $100 per day to a lifetime maximum of $36,500 to pay for expenses related to long-term care. Even though the new tax starts on January 1, 2022, no benefits are payable until 2025. You must pay into the program for a minimum of 10 years to be eligible for this program. These benefits are only available in Washington. If you move out of state, you forfeit the long-term care funds.
Can you opt out of this tax?
You have a one-time opportunity to opt out of this tax by applying for an exemption from the Employer Security Department between October 1, 2021 and December 31, 2022. To opt out, you must prove that you have other long-term care insurance that is equal to or better than the state’s policy and the policy must be in place by November 1, 2021. Choosing to opt out is permanent and you cannot reenter the program. Your employer must maintain a copy of your waiver certificate.
Evaluate your options.
Remember, time is of the essence and there are many competitive and affordable long-term care policies that may better suit your needs. If you choose to withdraw from the state’s program, Soundmark has advisors licensed to sell long-term care policies in Washington state and can help ensure you have a plan in place by the November 1, 2021 deadline.
This communication is intended to provide general information and is not intended as financial or tax advice. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.