An Introduction to the Washington State Long-Term Care Program
by Chad Van Dyken, CPA/CFP®
The Washington Long-Term Care Program is the nation's first public state-operated long-term care insurance program. The program mandates a payroll tax for Washington-based employees 18 and older to pay for long-term care expenses.
What is the Tax?
The Long-Term Care Act was created to reduce pressure on the Medicaid system. Beginning January 1, 2022, employers will begin withdrawing an additional payroll tax from Washington resident employee wages. The tax is 58 cents per $100 of income. Therefore, if you earned $100,000 per year, you would pay $580 per year in taxes.
Who is Subject to the Tax?
All employees in Washington must pay taxes into the Program, with a few exceptions. The LTC Program treats an employee as a Washington employee if:
- The employee’s service is localized in Washington; or
- If the service is not localized in any state, the employee performs some services in Washington and the services are controlled from Washington.
Self-employed individuals are exempt from the Program but may choose to opt in. Under the Program, self-employed individuals must elect coverage by January 1, 2025, or within three years of becoming self-employed for the first time.
No Cap On Wages
Unlike other state insurance programs, there is no cap on wages. All wages, including stock-based compensation, bonuses, paid time off and severance pay are all subject to the LTC Program tax.
What are the Benefits?
Employees who pay into the system for 10 years and remain in Washington can receive up to $100 per day, up to $36,500 lifetime, in long-term care benefits.
The coverage is triggered by needing support prescribed by a physician for activities such as bathing, dressing, eating, taking medication, etc. The intent of this coverage is to help with in-home or assisted living expenses associated with being unable to take care of oneself without help.
While the payroll tax is effective as of January 1, 2022, no benefits are payable until 2025.
Can Employees Opt Out of the Program (and the Tax)?
Individuals can opt out of this program (and therefore, the associated tax that comes with it) if they have a long-term care plan that is equal to or better than the state’s policy.
If you purchase a long-term care insurance plan before November 1, 2021, you may be eligible for exemption from paying this new payroll tax.
After securing a plan by November 1, you must apply for permanent exemption of the payroll tax and future benefits before December 31, 2022. If approved, an exemption will be effective for the quarter immediately following approval. Once you opt out, you cannot opt back into the Program. The opt-out is permanent.
Does a Personal LTC Policy Make Sense For You?
For higher wage earners, opting out and purchasing an individual policy will likely make sense because the cost of a personal plan will be less than the amount of tax owed. You may also want to consider opting out of the state program and purchasing a personal LTC plan if:
- You are newer to the workforce and would pay into the fund for decades, ultimately paying more in tax than you would receive in benefit.
- You plan on retiring before the benefits are available (remember, benefits do not become available until 2025).
- You plan on retiring outside the state of Washington or want the flexibility to do so. Employees who move out of state will not be eligible to receive benefits under the Program, even if they have paid into the Program for many years.
- You are self-employed and are considering returning to work for another company where you would be a W-2 employee, and therefore, subject to the tax.
Evaluating a LTC Policy
The cost for a personal LTC policy will depend upon many factors, including the benefits you select, your age and your medical history. Premiums are typically paid annually, and you can discontinue your coverage at your own discretion.
There are a variety of policies available to you, including traditional policies and hybrid policies. Traditional LTC policies generally operate on a “use it or lose it” basis while rates are never guaranteed. Hybrid policies are a combination of LTC and life insurance in which rates are usually guaranteed and have a cash value.
The choice to explore or purchase a LTC policy is a very personal one with many contributing factors. To ensure we find the best solution for you and your family, we encourage you to contact us today to discuss your specific scenario.
The intent of this content is to provide an overview of the Washington State Long-Term Care Program and does not include every detail of the program, including coverage eligibility, opt-out application details, etc. For more information, we encourage you to work with a specialized long-term care insurance provider.
Call us at (360) 734-4280 or fill out the form below and we'll contact you to discuss your specific situation.
Chad Van Dyken, CPA/CFP®
Chad Van Dyken is a Certified Public Accountant and Certified Financial Planner®, assisting individuals and families with tax planning, estate planning and personal financial planning.