New Mandatory Payroll Tax Related to Long Term Care

Mandatory Payroll Tax Long Term Care Washington – Shannon & Associates CPAs Kent, WA

There is a new mandatory payroll tax that will affect nearly all employees in the state of Washington.

This long-term care (LTC) tax has not yet raised a lot of attention but is fast approaching. The Employment Security Department (ESD) created the WA Cares Fund that is administering this new payroll tax.

Guidance is not yet final, but here is what we do know so far:

  • Employees will pay this tax starting on January 1, 2022.
  • This is a tax on your W-2 income that will cost $0.58 for every $100 earned, with no cap.
  • You can purchase your own LTC insurance by November 1, 2021, and apply for exemption of state coverage between October 1, 2021 through December 31, 2022.
  • If you don’t apply for exemption, you will pay the tax for life as long as you have W-2 income.
  • The state is still determining the rules for the exemption process.
  • The state can increase this tax twice a year.
  • LTC coverage is not portable, benefits will be lost if you leave the state.
  • LTC benefits cannot be accessed until January 1, 2025, for eligible employees.
  • The LTC benefit is up to $100 per day, lifetime of $36,500.
  • Eligibility to receive LTC coverage by the state has strict rules.
  • Employees will have to have LTC coverage one way or another.
  • Self-employed individuals must apply for an exemption if they consider becoming a W-2 employee.
  • Self-employed individuals can choose to opt-in.

What should you do?

Determine if it makes more sense to purchase your own plan or use the state-mandated plan. Generally, if you earn more than $100K it might be better to look at alternative options.

State-provided estimated LTC tax:

Annual Compensation / Estimated Tax
$100,000/$580/year
$250,000/$1,450/year
$500,000/$2,900/year

Comparable private LTC plans cost about $500-1,500 annually (depending on age and other factors) but typically provide shorter vesting periods and portability outside the State.

Who should consider opting out?

  • Individuals who plan on or want to retire out of state.
  • Individuals who plan on retiring before benefits become available on January 1, 2025.
  • Higher-income individuals who can purchase private LTC insurance for lower premiums.
  • Employees who are new to the workforce. These individuals will be paying far more in tax than the benefits that will receive.
  • Self-employed individuals who are considering becoming a W-2 employee.

If you want to purchase your own LTC insurance a list of insurance companies can be found here: www.insurance.wa.gov/long-term-care-insurance

For updated information from ESD, WA Cares Fund please visit www.wacaresfund.wa.gov

Any questions? Get in touch.

Please contact Shannon & Associates with any questions as we continue to monitor developments surrounding the mandatory payroll tax.

by Bridget Taylor

Leave a Reply

Your email address will not be published.