StateLTCTax.com

What is the Long-Term Care Payroll Tax and Will it Affect Me?

The long-term care payroll tax was an unpopular law passed in Washington in 2019, referred to as "WA Cares" (House Bill 1087). (It passed the Washington Senate on April 16, 2019 and the Washington House of Representatives on April 23, 2019.) The purpose of this tax is to shore up Medicaid, which is bearing the burden of rising funding long-term care costs. Long-term care insurance can be difficult to acquire for some individuals, due to health concerns. However, Medicaid doesn't kick in until applicants spend down their life savings to $2000 or less. House Bill 1087 came to a vote as an advisory question on November 5, 2019, and a vast majority of taxpayers voted to repeal the bill (nearly twice as many as voted for it); however, Washington politicians ignored public opinion and maintained it. (Currently, there is another bill--HB 1011--being considered to repeal HB 1087.) Collected tax funds go to the Washington State Employment Security Department ("ESD").

Workers in Washington had the option to purchase private long-term care insurance and opt out, but they had to be fully enrolled in the private coverage by November 1, 2021. Anyone not insured by that time and any new taxpayers coming into the system, will no longer have the option to opt out. Unfortunately, due to the rush to obtain coverage, many insurance carriers were so overwhelmed that issuing policies was vastly delayed. Other insurance carriers chose to refuse coverage completely.

Originally, Washington intended to implement the program on January 1, 2022, but then voted to delay it for 18 months. However, time is up. The state government in Washington began deducting the new payroll tax (.58% of total pay -- or 58 cents for every $100 earned) starting July 1, 2023, and it is the first state to do so; however, 13 other states are currently considering a similar tax for anyone earning income in their state.

Who did the WA Cares Bill Affect?
The new tax is a payroll tax applied to every worker who draws a paycheck from a Washington state employer. Exceptions to the tax are self-employed individuals, employees of federal tribes, certain collectively bargained employees, and those who purchased private long-term insurance to quality for a one-time limited exemption. Those on SSDI, Medicaid, or with limiting health problems that would make them uninsurable with a private LTC policy have not and will not be exempted, assuming they are still working.

Ongoing exemptions of the WA Cares tax are being made available to the following by application (within 90 days of status change) to the ESD:
 

• A veteran who has been rated by the U.S. Department of Veterans Affairs as having a service-connected disability of 70 percent or greater.

• A spouse or registered domestic partner of an active-duty service member in the United States armed forces whether deployed or stationed outside of Washington.

• An employee who holds a non-immigrant visa for temporary workers, as recognized by federal law, and is employed by an employer in Washington.

• An employee who is employed by an employer in Washington but maintains a permanent address outside Washington as the employee's location of primary residence.

Problems with the new payroll tax law: 

1. Once the tax is imposed in a state, it will go up regularly. There is no cap to how much the state can tax the working people to foot the medical bills for those who are not working. (Private LTC policies usually offer a level premium, and riders are available to keep up with an inflation protection index.)

2. There is no cap on income subject to the tax. All wages and remuneration, including stock-based compensation, bonuses, paid time off, and severance pay are subject to the tax.

3. The lifetime maximum benefit (or, the total pool of funds made available by this tax to help with long-term healthcare needs) is capped at $36,500 (with annual increases to compete with inflation). Given the current costs, this amount would cover only a fraction of the costs and will only last about 3-6 months, which is hardly "long-term" care. (A private LTC policy would provide a much larger pool of funds from which to draw and would last much longer.)

4. To access benefits, an individual must require assistance with at least 3 Activities of Daily Living (ADLs) (dressing, bathing, toileting, transferring, eating, bathing). A diagnosed cognitive impairment also qualifies. (A private LTC policy requires only 2.)

5. Full benefits are available only to Washington residents who have paid the tax for: (1) ten years without interruption of five or more consecutive years; or (2) three of the last six years before the application for benefits is made. Those born prior to January 1, 1968 receive a prorated benefit of 10% per year tax is paid. The first benefits won't be available until July 1, 2026. (Private LTC insurance begins paying in as little as 15 days after issue with the onset of physician-certified need.)

6. Once imposed and the opt-out period ends (if offered), the tax can no longer be opted out of, meaning those who don't end up needing the care will never benefit from paying for it. This also puts an additional strain on income earners in a down economy with skyrocketing inflation, rising costs of goods & services, and the lasting effects of Covid.

7. The coverage isn't portable, meaning it can't be accessed if you move out of state. Therefore, many of those who pay into the system will lose the coverage if they move (which is often the case as people age and choose to live closer to family.) (A private LTC insurance policy can be used anywhere in the US.)

However, despite the outcry from the public in Washington and the legal problems the state incurred, thirteen other states are currently considering imposing a similar tax on their residents. If you reside in one of the states listed HERE, prepare NOW so that you are less vulnerable to unfair, poorly designed, and overly burdensome taxation. We are committed to helping you understand your options so you can make informed decisions. If you have any questions or would like to learn more about how to access an affordable long-term care policy that you can use anywhere in the US, please don't hesitate to Contact a Licensed Agent.