How To Opt-Out Of The Washington Long Term Care Tax

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What Is The Washington State Long Term Care Tax?

Washington State has a new law called the Washington Long Term Care Trust Act, which requires employees to contribute a new payroll tax called the Washington Long-Term Care Tax that will tax people’s wages to pay for long-term care benefits in the future. The mandatory law will cost $0.58 on every $100 of wages.

The new WA LTC tax will start on January 1, 2022, and is permanent. As a result, people who plan to retire in the next 10 years have to pay premiums but may never qualify for benefits. Under current law, Washington residents have one opportunity to opt-out of this tax by having a long-term care insurance (LTC) policy in place by November 1st, 2021.

Apply For Exemption: https://wacaresfund.wa.gov/apply-for-an-exemption/

Washington State Long-Term Care Tax Opt-Out

Washington residents have one chance to get out of the public long-term care program. If you buy private long-term care insurance before November 1, 2021, and your private insurance is qualified, you can get out of the public program.

If you buy long-term care insurance before November 1, 2021, you can get an exemption from the premium assessment. However, it is only possible to apply for this exemption from October 1, 2021, to December 31, 2021. This means that employees have a short period of time to buy this insurance.

Washington State Long Term Care Tax

What Is The Washington Long-Term Care Program?

The Washington Long-Term Care Program, now known as the WA Cares Fund, is the nation’s first public state-operated long-term care insurance program. The program will be funded with a .58% payroll tax on all employee wages, and it starts on January 1, 2022.

This is not a tax on employers, but employers must collect premiums through employee payroll deductions and remit proceeds to the Employment Security Department (ESD). The agency will deposit funds in a trust for the individual until they qualify for the benefit.

No Cap On Taxed Wages

The Washington Long-Term Care Program currently has no cap on wages that is subject to this tax. This includes stock-based compensation, bonuses, paid time off, and severance pay.

Which Employees Are Subject To Long Term Care Tax in Washington State?

If you work in Washington, you must pay taxes into the program. The only people who do not have to pay are if they are self-employed or work for a federally recognized tribe.

The Washington Long-Term Care Program says an employee is treated as employed in Washington if:

  • The employee’s service is based in Washington.
  • The employees are not based in Washington but conduct services in Washington.
  • The services are directed or controlled from Washington.

This may mean employers out of state have to pay some taxes for their employees.

Who Is Eligible To Receive The WA Cares Fund Benefits?

You can benefit if you live in Washington and have paid premiums for the insurance program. Here are the requirements for eligibility:

  • Employees must have 10 years without interruption of 5 or more consecutive years.
  • 3 years within the last 6 years from the date the application for benefits is made. Also, to qualify, an employee must have worked at least 500 hours during each of the 10 years or each of 3 years, as applicable.

People who plan to retire in the next 10 years must pay premiums but may never qualify for benefits. And people who move out of state will not be able to get benefits.

What Are The Benefits Under The WA Cares Fund?

Benefits under the Washington Long-Term Care Program will become available on January 1, 2025. If eligible and the Department of Social and Health Services determines that an individual needs help with at least 3 Activities of Daily Living, the Program pays benefits up to $100 a day, with a lifetime limit of $36,500.

Activities of Daily Living

  • Personal Hygiene: Bathing, grooming, oral, nail, and hair care
  • Continence: A person’s mental and physical ability to properly use the bathroom
  • Dressing: A person’s ability to select and wear the proper clothes for different occasions
  • Feeding: Whether a person can feed themselves or needs assistance
  • Mobility: A person’s ability to change from one position to the other and to walk independently

Can Employees Opt-Out Of The WA Cares Fund?

Yes, an employee may opt-out of the Washington Long-Term Care Program and its taxes and benefits if:

  • The employee is 18 years old or older when they apply for the exemption.
  • The employee attests that they have other long-term care insurance.

To opt-out, the employee must provide identification verifying their age and apply for ESD exemption between October 1, 2021, and December 31, 2021.

If an employee’s exemption is approved, it will be effective for the quarter following approval. Once they opt out of the program, they can’t re-enter. The opt-out is permanent.

When Must the Employee Have Long-Term Care Insurance In Place To Opt-Out?

An employee with private long-term care insurance before November 1, 2021, can apply for an exemption from the premium assessment. Employees now know that they only have a short time to buy this insurance.

Opting Out Of The Washington State Long-Term Care Tax

After an employee’s application for exemption is processed and approved, they will receive an approval notification from ESD. The employee must provide this approval letter to their current and future employers. Employers must maintain copies of any approval letters received.

If an employee does not provide their approval letter to their employer, the employer must collect and remit premiums beginning January 1, 2022. Employees will not receive a refund of any premiums collected before the exemption.

Employees Who Move Out Of State

Employees who move out of state will not be eligible to receive benefits under the Washington Long-Term Care Program.

Washington Long Term Care Tax Exemption

Self-employed people are not required to sign up for this but can sign up if they want. However, self-employed people must do it by January 1, 2025, or within three years of starting their new job.

Wa Cares Exemption

What Qualifies As Long-Term Care Insurance In Washington

According to Washington State law, long-term care insurance is an insurance policy that provides coverage for at least 12 consecutive months if you have a debilitating prolonged illness or disability.

LTC insurance typically pays benefits when an insured person can no longer independently do two or more of the following activities of daily living (ADLs):

  • Bathe
  • Go to the bathroom
  • Eat
  • Dress
  • Transfer (such as getting out of a chair or bed)
  • Control their bladder or bowels (continence)

Long-term care insurance may be included as a rider on some life insurance and annuity policies. However, some life insurance policy riders don’t qualify as long-term care insurance in our state according to the definition of LTC insurance.

What Riders qualify for long-term care insurance?

The Office of the Insurance Commissioner (OIC) considers long-term care riders to be a form of LTC insurance if they meet certain benefit requirements.

To qualify as LTC in Washington state, a long-term care rider attached to a life insurance or annuity policy must cover long-term care services.

If you have a rider that pays for long-term care, it is considered LTC insurance and will be subject to the same rules as other LTC insurance.

Qualifying Products and Riders:

Which riders do not qualify for long-term care insurance?

Accelerated Death Benefit

Some life insurance policies have a rider called an accelerated death benefit. This does not qualify as LTC insurance in most circumstances.

An accelerated death benefit is when your life insurance policy starts giving you some money from your death benefit after getting a terminal illness.

Accelerated Death Benefits don’t qualify mainly because their benefits are paid to the insured without requiring the funds to be used for long-term care services. The payments must be paid specifically for LTC services only.

For an accelerated death benefit to qualify as long-term care insurance, the rider must meet all regulations. In addition, the word “long-term care” must be in the name of the rider.

Critical Illness Rider

Another kind of rider is the critical illness rider. This does not meet the definition of LTC insurance in Washington state. Like an accelerated death benefit, this converts the value of a policy or contract to cash payments if you have been diagnosed with a chronic illness.

Critical Illness riders don’t qualify mainly because their benefits are paid to the insured without requiring the funds to be used for long-term care services. The payments must be paid specifically for LTC services only.

What Insurance Companies Are Approved For LTC Insurance

Here is the list of insurance companies approved in Washington for Long-Term Care insurance. Utilize a licensed insurance agent like The Annuity Expert to help find your best options to avoid this payroll tax. You can shop long-term care annuities as a starting point.

Washington Long Term Care Tax

Frequently Asked Questions

When is it not worth opting out of the WA Long-Term Care Payroll Tax?

If a WA resident nearing retirement, opting out of the long-term care payroll tax is not worth opting out. The payroll tax applies to active W-2 employees only. If a WA resident earns less than $100,000 a year or does not plan to earn more than $100,000 a year in their career, it is not worth opting out of the long-term care payroll tax.

How much will it cost me to contribute to the WA Cares Fund?

Washington employees will pay $0.58 per $100.00 of their wages. Thus, for every $100 a Washington employee earns, they will pay $0.58 for the rest of their career.

Can I cancel my LTC policy after I’ve been approved for the opt-out?

No. You should not cancel your policy after you have been approved for the opt-out. The WA LTC tax is a payroll tax, and employers must maintain records of all employees paying or opting out of the payroll tax. Therefore, employees must prove to every new employer that they have coverage and approved opt-out documentation. The state legislation does not reflect a penalty for canceling after opting out. However, legislation and rules can change in the future, which could lead to a retroactive tax penalty if the LTC policy is canceled.

Is long-term care insurance required in Washington State?

Washington employees must contribute a new payroll tax called the Washington Long-Term Care Tax to tax people’s wages for long-term care benefits. The mandatory law will cost $0.58 for every $100 of wages. However, employees may purchase private long-term care insurance to permanently opt out of the payroll tax.

How do I opt out of Long Term Care in Washington State?

An employee with long-term care insurance before November 1, 2021, can apply for an exemption from the new payroll tax.

How much is long-term care insurance in Washington state?

Premiums for LTC policies depend on the benefits selected, your age, and your health. Premiums are typically paid annually, and you can discontinue them anytime. However, there is a risk that traditional LTC policies will increase over time, as long-term care insurance companies often do not guarantee level premiums. Alternatives to traditional insurance are long-term care annuities and deferred annuities with long-term care riders.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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