Long Term Care through a Mandatory Payroll Tax
The Concern: As baby boomers are rapidly moving into retirement, long-term care services provided by Medicare are putting an increasing strain on budgets. 7 out of 10 people will need long-term care after turning 65, and 70% of Americans rely on public benefits such as Medicaid to cover long-term care. In fact, Washington’s spending on Medicaid-funded long-term care is projected to double to $4.01 billion per year in 2030.1
The State’s Solution: In 2019, Washington’s Long Term Care Services and Supports Act (LCT Trust Act) was passed, with the goal of providing eligible Washington state residents long-term care benefits through payroll taxes.
The Tax: Beginning January 1, 2022, all Washington W-2 employees will be taxed at an uncapped rate of $0.58 per $100 of income. Self-employed workers may opt-in.
Who can access the benefit? Those who pay into the program for three years, or for a total of 10 years including five consecutive years can access the benefit.
What will my benefits be? Anyone vested who requires assistance with three activities of daily living can access the benefit coverage. It currently maxes at $36,500 but will increase with inflation rates. It’s important to note the benefits will only apply for one year- which falls way short of the average duration of long-term service needs in of 2.7 years.
What can the benefits be use for? This money can help with things like caregiving, wheelchair ramps, meal deliveries, and nursing home fees.
What if I already have a long-term care policy, or plan to get one? Recently, the Washington state house passed a revised LTC Trust Act including an amendment that provides a window for exemption. According to the Tharinger Amendment, individuals have 90 days after legislation ends which will be July 24th, 2021, to acquire private long-term care. They may then submit an exemption request to the Washington State Employment Security Department between October 1, 2021 and December 31, 2021.
What if I move? Your benefits are not portable. Residents who move out of state for longer than five years will forfeit benefits and premiums.
I’m an employer, do I have to contribute? No. Employers will not have to contribute to this program.
What else should I know? Once the exemption is granted, it is irrevocable, and you are permanently ineligible to receive benefits under the LTC Payroll Tax Law. You are responsible for notifying your employer of the exempt status so that no LTC payroll taxes are withheld.
There is some urgency to applying for the long term care exemption. We advise applying prior to May 15th, as there is expected to be a delay, and a high volume of applications.
Please reach out to your Sweeney Conrad professional with any questions.