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Washington payroll tax for long-term care benefits effective in 2022

INSIGHT ARTICLE  | 

Authored by RSM US LLP


Beginning Jan. 1, 2022, all employees in Washington state will be subject to a new payroll tax to support the ‘WA Cares Fund,’ a long-term care public insurance benefit.

Employees will be required to contribute through a 0.58% payroll deduction, with one important exemption discussed below. This 0.58% payroll deduction is uncapped. All wages and remuneration, as defined by statute, will be subject to the new payroll tax. Employers, however, are not required to separately contribute to the WA Cares Fund.

The purpose of the WA Cares Fund is to provide up to $100 per day with a $36,500 lifetime cap to eligible beneficiaries for approved long-term care services, adjusted annually for inflation. These services include, but are not limited to, adult day services, memory care, environmental modification, home delivered meals, in-home personal care, assisted living services and nursing home services.

An individual may become an eligible beneficiary in two ways:                

  • Contributing the payroll deduction for 10 years with at least five of these years being consecutive. An individual must work at least 500 hours in each of the 10 years counted for purposes of vesting as an eligible beneficiary.
  • Contributing the payroll deduction at least three years within the last six years from the date of application for benefits. An individual must work at least 500 hours in each of the three years counted for purposes of vesting as an eligible beneficiary.

Benefits may be claimed when individuals are assessed as needing assistance with at least three activities of daily living beginning Jan. 1, 2025. However, eligible beneficiaries must reside in Washington. If an individual is living out-of-state at the time of application, they are not eligible for WA Cares Fund benefits.

Employers with Washington employees must remit amounts collected from the 0.58% payroll deduction on a quarterly basis.

Self-employed individuals, including independent contractors, may choose to opt-in in order to qualify for the public benefit. The deadline for self-employed individuals to opt-in is Jan. 1, 2025 or within three years of becoming self-employed for the first time. After opting in, self-employed individuals may not withdraw from coverage.

Exemption

For a very limited period of time, Washington employees may claim an exemption and opt out of the 0.58% payroll tax. In order to opt out, individuals must file an attestation with the Employment Security Department that they have purchased their own qualifying long-term care private insurance policy prior to Nov. 1, 2021. The Employment Security Department will only accept exemption applications from Oct. 1, 2021 through Dec. 31, 2022.

If approved, exempted individuals will receive a letter from the Employment Security Department that must be provided to their employer instructing the employer not to make WA Cares Fund payroll deductions on their behalf.

Following an opt out, the exemption is permanent. Exempted employees cannot opt back in to the public long-term insurance care benefit at a later date.

Presently, the type and level of documentation that the Employment Security Department will require for a successful exemption as part of the attestation process is unknown, but it is anticipated that additional rules and procedures will be published prior to Oct. 1, 2021.

Takeaways

Any employer with employees in Washington must be aware of and be prepared to implement this new payroll tax.

Moreover, any employee in Washington should proactively plan for this 0.58% payroll deduction effective Jan. 1, 2022 and carefully consider whether obtaining an exemption will be advantageous given their individual circumstances. Washington employees with higher incomes may find purchasing a qualifying long-term care private insurance policy may save money given that the 0.58% payroll deduction is uncapped. In addition, Washington employees uncertain as to whether they will retire in Washington may consider purchasing a qualifying long-term care private insurance policy with portability given that individuals living out-of-state are not eligible for any WA Cares Fund benefits.

Washington employers and employees should consult with their tax advisor to best determine how Washington’s new payroll tax to support its long-term care public insurance benefit will affect them.

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This article was written by Kirsten Moritz-Baune, Andy Colson, Tyler Gritts and originally appeared on 2021-07-14.
2021 RSM US LLP. All rights reserved.
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