WA Cares, A Washington State Public LTCi Program and Payroll Tax

The State of Washington passed the Long-Term Services and Supports (LTSS) Trust Act to establish a mandatory public long-term care insurance (LTCi) program called WA Cares.  A one-page summary and a flyer explain the purpose and benefits of the new program, and more employer educational materials are in development for distribution by October 1, 2021.  According to the law, “the commission shall work with insurers to develop long-term care insurance products that supplement the program’s benefit.”  You can watch for implementation guidance here.

New payroll tax starting January 1, 2022: The law requires employers to withhold and remit a 0.58% payroll tax from wages (with no cap) of adult employees (age 18+) working in Washington (regardless where the employer is headquartered), with mandatory quarterly reporting to the Employment Security Department (ESD) via the same portal used for Paid Leave.  This tax is payable on all wages earned in Washington until the employee retires or otherwise stop working in Washington.  Even though benefits are only payable if residing in Washington, it’s possible anyone working in Washington but residing outside Washington might be subject to this tax even though they could not possibly benefit from the program while residing outside Washington.

• So a Washington worker earning $50K/yr will pay in about $24/mo (or $290/yr) at the start (over $5,800 over 20 years of employment)
  • $100K/yr will pay in about $48/mo (or $580/yr) to start (over $11K over 20 years of employment)
  • $200K/yr will pay in almost $97/mo (or $1,160/yr) to start (over $23K over 20 years of employment)
• Self-employed individuals may opt in if they’d like to before January 1, 2025, or within three years of becoming self-employed for the first time (once opted in, they’re locked in)
• Union workers in a collective bargaining agreement (CBA) that was in effect on October 19, 2017, will not have to pay the tax until the CBA is reopened, renegotiated, or expires
• A federally recognized tribe has sovereignty to elect to participate or disenroll at any time for any reason
• The rate will be evaluated every other year to ensure program solvency, but should it ever exceed 0.58%, the government must advise residents not only of the new rate but also how they are actively working to bring the rate back down to 0.58%

New public LTCi benefits starting January 1, 2025: These tax revenues will be used to fund an LTCi trust called the WA Cares Fund which will be managed by the State.  Benefits are up to $100 per day (will index in future years), for up to 365 lifetime days, to cover qualified long-term care services received in Washington (does not pay for services received outside of Washington) when the vested age 18+ Washington resident that was not disabled before age 18 needs assistance with at least 3 activities of daily living (ADLs).  Benefits are not taxable and are not reported as income.  A vested individual will not be able to utilize their benefits when residing in another state.

Resident employees will be vested to receive these benefits when they have paid into the fund for:

• A total of ten years with no break in service lasting five or more consecutive years (permanent vesting), or
• Three years within the last six years from the date of application for benefits (temporary vesting),
• With 500 hours each of the qualifying years.

Limited time for employees to opt out: Employees age 18+ who purchase their own private LTCi before November 1, 2021, may submit an application to the ESD between October 1, 2021, and December 31, 2022, to request permanent exemption from the program benefits and payroll tax.  Since the private LTCi must be purchased before November 1, 2021, it makes sense to just submit the exemption application in October 2021 to ensure the tax is never deducted from pay.  If the employee submits their exemption application in late 2021 or in 2022, note that exemptions will take effect the quarter after your application is approved, so if the application takes ESD a few weeks to approve and that pushes the approval into a 2022 date, the employee will have premiums deducted for each quarter from January 1, 2022, until the last day of the quarter their exemption is granted, and the premiums will not be refunded.

Once opted out, the individual may never opt back in, so the employee must provide the exemption approval to every subsequent employer they ever perform work for in Washington for the rest of their lives (the government intends to establish an online portal individuals could log into in order to retrieve their approval letter in the future).  Without it, the employer must deduct the premiums and the employee cannot be refunded, even though the employee is expelled from WA Cares for life.  Employers must keep a copy of the exemption approval on file (with no indication for how long to retain this record).

Employees who have not purchased private LTCi before November 1, 2021 (or who purchased on time but fail to submit their exemption application by December 31, 2022) will not have any further opportunity to opt out.  So individuals not yet age 18 (and therefore unable to buy their own coverage), and those who might begin working in Washington in the future, will be forced to participate in the public program and pay the tax.

Employer next steps: Employers may want to peruse the WA Cares Employer Toolkit to help educate employees on the new WA Cares LTSS program and payroll tax, perhaps supplementing with your own materials to review the pros and cons so employees can determine for themselves whether to explore private LTCi options or whether they are okay with the public program.  Employees that do not currently have LTCi coverage would only have a few weeks left to evaluate their options in order to purchase coverage in time to opt out.  “The department considers a policy purchased at the time the purchaser and insurer agree to terms on a policy and a transaction occurs.”

Then of course, employers will want to prepare to start deducting the payroll tax as of January 1, 2022, and remitting required payments and reporting to ESD via the current Paid Leave portal.  More guidance is expected on that in the coming weeks.

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.  A class action lawsuit is underway calling for an injunction against this law.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.