On May 13, 2019 Washington State Governor, Jay Inslee, signed into law the nation’s first public-operated, long-term care insurance program, dubbed the “Long-Term Services and Supports (LTSS) Trust Act”. Funding for the program will be paid by employees residing in the state of Washington through an employee payroll tax which is to be implemented and collected by employers beginning on January 1, 2022. As you can imagine with any law that is the first of its kind, there is a lot of information to unpack. Let’s break it down:
The Payroll Tax
Beginning January 1, 2022, the LTSS Act imposes a mandatory payroll tax of 0.58% on all W-2 income (58 cents per $100 in income), including equity compensation such as stock options and Restricted Stock Units (RSUs). Other investment income, such as interest, dividends, and capital gains, are not subject to the tax. There is also no cap on the payroll tax. For example, someone making $1 million in W-2 income during 2022 will pay $5,800 in payroll taxes.
Beginning January 1st, 2025, every qualifying person who is eligible to receive benefits will have access to a maximum lifetime benefit of $36,500 that is adjusted annually for inflation. These benefits can be used for a range of care-related services including:
- Professional care at home, licensed residential, or nursing facilities
- Home safety evaluations
- Home-delivered meals
- Memory care
- Training, pay and support for family members providing care
- Assisted living services
Note: The above list is not comprehensive but rather is meant to provide a sample of the services and support that will be offered through the program.
How to Qualify for Benefits
To qualify, individuals must be Washington residents who are at least 18 years old and who have paid the payroll tax: (1) a total of at least 10 years with at least 5 of those years occurring without interruption; or (2) three out of the past six years. In either case, the eligible recipient must have worked at least 500 hours per year.
Note: In addition to the requirements listed above, an eligible recipient must maintain residency in Washington State to qualify for benefits. If your primary residence is outside of WA for five years or more, you will forfeit all taxes paid and be ineligible for benefits.
Once meeting the above requirements, the applicant must need assistance with at least 3 out of 10 Activities of Daily Living (“ADLs”): medication management, personal hygiene, eating, toileting, cognitive impairment, transferring, body care, bathing, ambulation/mobility, dressing.
What if you already have a Long-Term Care Policy in place? As currently written, WA State residents that have their own qualified long-term care policy in place before November 1st, 2021 will have a limited window between October 1st, 2021 and December 31, 2022 to submit an application to the Employment Security Department of Washington State exempting them from the tax. Once that window closes, no further exemptions will be granted.
Those who are self-employed* are automatically exempt and instead need to “opt-in” to the plan should you wish to participate and be eligible for long-term benefits. Self-employed individuals must opt-in between January 1st, 2022 and January 1st, 2025. The decision is irrevocable.
Is it more cost-effective to pay for a basic, private long-term care policy vs. paying into the WA Long-Term Care Trust Fund? This is a question that everyone should be asking themselves. For those high- income earners in their 30s, 40s, and 50s that are healthy, the answer could be yes. Under the terms set forth in the legislation, higher-income workers can end up paying much more into the program than the maximum benefit provided and still not have adequate long-term care coverage.
On the flipside, depending on your health circumstances, you could qualify for a private traditional long-term care policy or long-term care hybrid policy that might cost less, provide more benefits, be transferrable across state lines, and be more suitable for your situation.
There are many variables and no one-size–fits–all solution. Many people will likely be better off paying this new tax, which applies only to W-2 income (not K1 or other investment-related income). For others, it is likely more beneficial to pursue a private, qualified, long-term care policy prior to the November 1st deadline. Because these are irrevocable decisions with long-term impact, it is always advisable to plan thoughtfully and in advance with a trusted advisor.
*To be considered self-employed you must own a sole proprietorship or other business with no W-2 payroll. All W-2 income is taxable.