July 20, 2021

Dear Friends and Neighbors,

I recently heard from many of you regarding the payroll tax that will be implemented next year to fund long-term care. I know many of you have questions and concerns regarding this new tax and I wanted to provide you with background information on this topic and what’s coming next.

In 2019, the legislature passed HB 1087 which created the WA Cares Fund. Under this bill, most Washingtonians, both public and private W-2 earners, would receive a onetime $36,500 benefit for long term care. This will be funded by a mandatory payroll tax of 58 cents for every $100 of income starting in 2022.  This is on top of all the other state and federal taxes workers already pay.

I, and most of my Republican colleagues, did not support this bill for several reasons. I acknowledge that many individuals and families are not prepared for the financial cost of long-term care.  At its best, this is seen by many as a modest, government-administered, worker tax-funded program that potentially offers short-term relief. If you have a friend or loved one receiving long-term care in a nursing home facility or at home, you know very well that $36.5k doesn’t go very far.  At its worst, many employees will pay into this program and never receive any of its benefits and there is only one opportunity to opt out of this mandatory payroll tax. 

Before the bill even passed, lawmakers knew the amount of the payroll deduction will need to increase in future years as the current contribution rate will likely fall short of funding this program -- meaning we can all expect that 58-cent tax to go up over time with a simple majority vote of the legislature! If individuals wish to opt out of the state mandated program, they must purchase private insurance by October 31 and submit a withdrawal application to the Washington State Employment Security Department before the end of the year.

I also want you to be aware of the fact that if you are retire between now and 2025, you will pay into this program but will not be eligible to receive any benefit from it; unfortunately, you do not own this policy, the state does. This is also the case for individuals who move out of state at any point after they are enrolled, they will no longer be eligible to receive this benefit. For workers moving into Washington state in and after 2022, they will be automatically enrolled in this program without the choice to opt out. The same is true for 16 and 17-year-olds joining the workforce.

If you would like more information on private long-term care insurance companies approved to sell in Washington state, check out the Office of Insurance Commissioner’s website. I have also provided the following Q&A below to help answer your questions and will be sending out more information as we get closer to the reporting dates. Please do not hesitate to contact my office if you have any questions or concerns.

Cordially,  

Shelly Short

.

.

Q&A

What is the amount of the payroll tax?

• Long-Term Services and Supports Trust Program will be publicly funded by a 0.58% payroll tax on all wages and compensation, withheld quarterly by employers.

Is there a cap on the amount of wages that are taxed?

• No, there is no cap on wages. All wages, including stock-based compensation, bonuses, paid time off, and severance pay, are subject to the tax. For example, an employee with wages of $65,000 will pay $377 toward the Program each year while an employee with wages of $250,000 will pay $1,450 toward the Program each year.

Can the payroll tax increase?

• There is no guarantee that the payroll tax will remain fixed. The law sets the tax rate at 0.58% initially but there is a high possibility that it could increase in future years.

How can I get an exemption from paying the tax? 

• Individuals can apply for an exemption if they are over the age of 18 and attest that they have long-term care insurance purchased before November 1, 2021. Individuals must apply for an exemption through the Employment Security Department (ESD), which will only accept applications beginning on October 1, 2021 through December 31, 2022. No applications will be accepted after December 31, 2022. (ESD is working on the exemption form at this time).
• If an exemption is approved, individuals will not be required to pay taxes to fund the Program and will be ineligible for benefits under the Program. In addition, employers will not be required to take payroll deductions for these individuals.
• Exempted employees are required to provide written notification to all current and future employers to notify them of their exemptions. Exemptions will take effect on the first day of the quarter after the exemption is approved and employees cannot receive refunds for premiums paid prior to the exemption.

If I move out of Washington after paying this tax, does the benefit follow me or can I get a refund?

• Unlike private insurance this benefit is not portable and has no cash value. So, if you move out of state after paying this tax, it will not follow you and you are not entitled to a refund.

How did this tax sneak up on me without warning even though it was passed two years ago?

• That’s a great question! Unfortunately, proponents of this legislation are hoping it goes under the radar until it is implemented to maximize contributions to the WA Cares Fund. To keep you updated, I encourage you to subscribe to my e-newsletter updates – which many of you have -- and follow the Senate Republican Caucus on Facebook and Twitter. We will do our best to keep you updated on what’s happening in Olympia.

16-17 year-olds

My child is 16 or 17 and has a job, do they pay into the WA Cares Fund?

• Yes, if they have a W-2, they will pay into the program unless they get an exemption.

My child turns 18 in February 2022, they are wishing to be exempt, is there way for them to get an exemption?

• No, they are automatically enrolled in the program if they are working.