New Payroll Tax for Long-Term Care in Washington State

The Washington State Long-Term Care Trust Act (2019 Ch. 363, HB1087), also known as the WA Cares Fund, becomes effective on January 1, 2022, making Washington state the first in the nation to create a publicly funded long-term care insurance program for workers. The program will be funded by Washington-based employees, who will pay an uncapped payroll tax of .58% on all W-2 earnings through payroll deductions. Limited long-term care benefits will be payable up to a maximum lifetime benefit of $36,500; however, the state won’t begin paying benefits until 2025.

There will be a window of opportunity for workers who own private long-term care insurance to apply for an exemption from this new tax, but if an employee doesn’t have acceptable, paid, in-force long-term care coverage in effect before November 1, 2021, the employee cannot be exempted from this tax.

ALPA plans to offer pilot-paid long-term care insurance that will qualify for an exemption from the new payroll tax based on Washington State’s criteria for acceptable long-term care insurance. More information will be forthcoming to ALPA members in time to satisfy the November 1, 2021, opt-out deadline.

Employees must apply to the Washington State Employment Security Department (ESD) directly for an exemption from the payroll tax between October 1, 2021, and December 31, 2022. ESD is currently developing the process to apply for exemptions. The exempted employee will receive a letter from ESD which must be given to the employer informing the employer of the exemption. There will be no refunds for WA Cares Fund taxes that are deducted from the employee’s pay before the employee receives the exemption letter. Once exempted, the employee may not opt back into the program and will not have access to the WA Cares Fund benefit.

Only Washington residents age 18 or older who have paid the payroll tax for either three of the past six years prior to requesting benefits or a total of 10 years without interruption, five of which must be consecutive, will qualify for the benefit. Self-employed individuals may choose to participate in the program but are not required to. In order to receive a benefit under the program, long-term care services must be approved and provided inside Washington for state residents only.

Here are some concerns about the WA Cares Fund and the benefits offered:

Those who earn more will pay proportionally higher in taxes, but only receive the same small lifetime benefits as those who pay the minimum to qualify.
Washington State’s long-term care plan only covers up to a $36,500 lifetime benefit, which is just a small fraction of actual long-term care costs.
It can take years to qualify for the benefit and those who pay the tax may not be eligible to receive any of the benefits, such as employees who are nearing retirement.
The payroll tax can increase if the state actuary determines the funding level of the WA Cares Fund to be inadequate.
There is no portability of benefits. Individuals who move out of the state cannot access the benefits.
Benefits are more stringent to access than typical long-term care insurance, with a person needing three activities of daily living (e.g., bathing, dressing, eating, personal hygiene, transferring, toileting). Benefits are triggered under most private insurance policies with two activities of daily living or one cognitive impairment.
Payment of benefits can be made by reimbursement only, and cannot be automatically paid to the qualifying person for any needs or expenses (also known as indemnity).

Regarding collective bargaining agreements, the law indicates, “(3) Nothing in this chapter requires any party to a collective bargaining agreement in existence on October 19, 2017, to reopen negotiations of the agreement or to apply any of the responsibilities under this chapter unless and until the existing agreement is reopened or renegotiated by the parties or expires.”

According to the ESD, if a collective bargaining agreement has been reopened since October 19, 2017, premiums should be assessed for the WA Cares program on employees subject to the collective bargaining agreement. This date is the same date for used in the Washington Paid Family and Medical Leave (PFML) law (RCW 50A.05.090). The reasoning for using the same date is to align the programs for state reporting, collection, and assessment purposes. There are no exemptions specifically for individuals covered by collective bargaining agreements.

The tax will be collected from a worker’s paycheck when their work is considered “localized” in Washington. The definitions of “employment,” “employee,” “employer,” and “wages” in the WA Cares Fund legislation reference the PFML law. So, if an employee pays premiums for PFML, they will pay premiums for the WA Cares Fund since the definitions for both programs are the same.

The law’s provisions continue to evolve as Washington State’s government agencies charged with implementing the law clarify its definitions and procedures. Additional information is available at wacaresfund.wa.gov. Questions can be submitted at wacaresfund.wa.gov/contact-us.