Washington State’s long-term care program, long under the radar, should now be on the minds of every Washington state employer – as well as its employees. The law mandates long-term care benefits for Washington residents that are paid for through an income tax.
Tax / bonus collection will begin January 1, 2022. Employees seeking retirement within the next 10 years will be required to pay bonuses – but may not be eligible for the benefit. There is an extremely limited time window for the exemption from opt-outs, which opens on October 1, 2021.
Employers must act now to meet wage tax deductions and to inform workers and answer questions.
This article provides background information on the Washington program, an overview of the proposed rules1, and answers to key questions employees may already be asking, including what steps they must take to opt out.
What is the Washington LongTerm Care Program?
The Washington program is the first state long-term care insurance program in the country. The program, which is codified in RCW Chapter 50B.04, will be funded from January 1, 2022 through a payroll tax of 0.0058 (0.58 percent) on all employee wages.
However, payroll tax is not enough to pay the benefits, and the program’s assets are currently expected to be depleted by 2076.
Employers must collect these premiums through after-tax payroll contributions and transfer these premiums to the Washington State Employment Security Department (“ESD”) as part of their quarterly reporting. Employers are not required to contribute to the program, they simply transfer the taxes paid by the employee.
Is there a cap on the amount of taxable wages?
Significantly, and unlike other government insurance programs, there is no salary cap. All wages and allowances, including stock-based pay, bonuses, paid time off, and severance pay, are subject to tax. For example, an employee with a salary of $ 65,000 pays $ 377 to the program each year, while an employee with a salary of $ 250,000 pays $ 1,450 to the program each year.
Which employees are subject to tax / premium collection?
All Washington employees are required to pay taxes into the program. Exceptions are the self-employed, employees of a state-recognized tribe, certain collectively agreed employees and employees who are entitled to an exemption (see below).
For the purposes of the program, an employee will be treated as employed in Washington if the employee’s service is located in Washington or, if the service is not located in a state, the employee performs some services in Washington and directs or controls the services from Washington (Note that the program defines employment in the same way as the Washington Paid Family and Medical Leave Program).
While we anticipate that ESD will provide clear guidance, it likely means that employers outside of the state will need to collect and transfer bonuses for all employees who work primarily in Washington.
Who is entitled to benefits?
Benefits are limited to Washington residents who have received either (1) a total of 10 consecutive years of uninterrupted five or more consecutive years, or (2) three years within the last six years from the date of the application for benefits, under the program becomes. In addition, an employee must have worked at least 500 hours in each of the 10 or three years to qualify.
From a practical point of view, this means that workers who intend to retire in the next 10 years will have to pay contributions but may not be entitled to the benefits. It also means that retirees who move out of the state will not be eligible for the benefits.
What are the advantages of the program?
Services under the program will be available for the first time on January 1, 2025. If eligible, and when the Department of Social and Health Services determines that an individual needs assistance with at least three activities of daily living, the program offers benefits of up to $ 100 per day up to a maximum lifetime limit of $ 36,500.
Can employees unsubscribe from the program?
Yes, as described in the proposed rules, an employee can withdraw from the program and all related taxes and benefits if (1) the employee is at least 18 years old at the time of applying for the exemption and (2) the employee confirms, that he has another long-term care insurance within the meaning of RCW 48.83.020.
To opt out, a qualified employee must identify themselves to verify their age and apply to ESD for an exemption (using a format approved by ESD) between October 1, 2021 and December 31, 2022.The employee’s exemption will take effect for the quarter which takes place immediately after approval. As soon as an employee logs out, he can no longer opt for the program, ie the logout is permanent.
There is nothing in the program to prevent employees from canceling their other coverage after approval, but the employee will never be eligible for benefits under the program.
When does the employee need to have long-term care insurance in order to deregister?
Employees must purchase long-term care insurance before November 1, 2021 to de-register from the program. This is a very short window of time for long-term care insurance.
How do I know if my employees have opted out of Washington State Long-Term Care Program?
After an employee’s exemption request has been processed and approved, he or she will receive a letter of approval from ESD. The employee must present this letter of approval to his employer.
Employers must keep copies of all letters of approval received.
If an exempted employee does not present the letter of approval to his employer, the employer must collect and pay the premiums from January 1, 2022. An employee is not entitled to reimbursement of the premiums that were received before the employee’s leave of absence took effect or before the employee has presented the letter of approval to his employer.
After an employee’s exemption request has been processed and approved, he or she will receive a letter of approval from ESD.
This could affect decisions related to timing of remuneration – for example, if an employer knows that a large number of employees have requested an exemption, the employer can take into account that those employees may appreciate late bonuses and stock bonuses to prevent such wages are subject to wage tax.
If an employer deducts contributions after an employee has given the employer their consent, the employer must reimburse the deducted contributions and is responsible for reimbursing the contributions to the employee. The employer is not entitled to a reimbursement of ESD premiums.
What happens if an employee moves out of the state?
Because benefits are limited to Washington residents, employees who emigrate from the state are not eligible for benefits under the program. Employees who have a second home can therefore consider where they have their permanent residence.
Are self-employed people exempt?
Yes, the self-employed are exempt from the program, but can choose to do so. Under the program, self-employed persons must take out insurance by January 1, 2025 or within three years of their first self-employment.
Are employees covered by collective agreements exempt?
Contracting parties to a collective agreement existing on October 19, 2017 are not subject to the program, unless the existing collective agreement is reopened and renegotiated or the existing collective agreement expires. The parties must notify ESD when the collective agreement is opened.
Will the ERISA statute be brought forward?
May be. Because the program requires employers to maintain an ongoing administrative program that includes a program that provides health, sickness and disability benefits, ERISA may favor the program. Employers can challenge the law for reasons of ERISA’s right of first refusal.
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