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The WA Cares Fund (formerly the LTC Trust Act) creates a publicly funded, long-term care benefit providing a basic level of long-term care for working Washington residents.
Here are three things you need to do right away:
1. Reach out to your insurance agent for a Long-Term Care (LTC) insurance quote.
2. Compare this quote to the new Washington state LTC tax you anticipate being withheld from your paycheck and benefits you expect to receive.
3. Tell your children, friends, neighbors, colleagues, co-workers, and parents to make an informed decision on whether they should opt out of the program. This is a one-time opt-out, and it must be completed by November 1, 2021.
(NOTE: LTC policies are taking up to three months to put into place. Do not delay this action.)
WHAT IS LONG-TERM CARE? WHAT IS LONG-TERM CARE INSURANCE?
Long-term care pays for services designed to meet a person’s health or personal needs as they age and require additional help completing their daily activities. This care can be provided through in-home living, independent living, assisted living, and skilled nursing. Long-term care insurance provides funds to cover part or all of the costs for such services.
WHAT’S THE TAX?
Starting January 1, 2022, employers will begin withholding a new payroll tax from employee paychecks as a premium payment for the new long-term care benefit.
The initial premium rate 0.58%. This amounts to $58 annually for a W2 income of $10,000. But, unlike other payroll tax deductions, there is no cap on the amount of wages that are taxed. The tax can also increase at any point — a decision that is up to an eight-member board that monitors the fund and makes sure it is solvent.
HERE ARE A FEW CALCULATIONS ON VARIOUS W2 WAGES:
W-2 wage of $50,000 x .58% = $290 tax per year
W-2 wage of $100,000 x .58% = $580 tax per year
W-2 wage of $200,000 x .58% = $1,160 tax per year
W-2 wage of $300,000 x .58% = $1,740 tax a year.
WHO IS SUBJECT TO THE NEW TAX?
Starting January 1, 2022, all W-2 employees will be subject to this new payroll tax (unless you opt-out in time). This tax will be paid by employees through mandatory employer paycheck withholdings.
Self-employed individuals and union employees are not subject to this tax. They can, however, choose to opt-in to the program.
WHAT BENEFITS DOES THIS PROGRAM PROVIDE?
Individuals can receive up to $100 per day to cover long-term care costs, with a maximum lifetime benefit of $36,500 (the benefit equates to a year’s worth of coverage for long-term care expenses at $100 per day). This benefit amount does have the ability to index, but the amount will be no greater than the Washington CPI. An eight-member panel will be monitoring this; though it is not required to keep the benefit amount up with inflation.
Benefits can be used for nursing homes, assisted living, home health care, rides to doctor appointments, and several other covered activities.
OTHER CONSIDERATIONS OF THE WASHINGTON CARES FUND:
• Benefits are not portable outside of Washington state
• Benefits only cover the employee who is contributing through payroll, not their spouse or dependents
• Unused benefits will not be returned to the participant
• Elimination period is automatically set at 45 days
• Retirees will not be covered under this program
HOW CAN I OPT-OUT AND BE EXEMPT FROM THIS NEW PAYROLL TAX?
You can opt-out permanently if you have your own long-term care insurance policy in place before November 1, 2021, that provides equal or better benefits. You must then submit an attestation that you purchased this policy to Washington state’s Employment Security Department between October 1, 2021, and December 31, 2022.
Individuals can also be exempt from this program if they have a qualified life insurance policy or annuity that includes supplemental coverage for long-term care expenses.
SHOULD I GET MY OWN LTC INSURANCE POLICY?
We recommend exploring alternatives for any of the following reasons:
- You plan to move outside of Washington State in retirement. You can only collect these benefits if you receive care in Washington state. Those who plan to move away will not receive any benefits and would receive far greater value by purchasing their own policy to use for LTC expenses in any state they choose to live in retirement.
- You plan to retire in the next few years. To be eligible, you must have paid into the system either (1) for three years within the past six years, or (2) for a total of 10 years, with at least five of those years paid without interruption. You will not receive any benefits if you do not meet these requirements before leaving employment.
- High income earners. This includes anyone who earns $300,000 or more in annual employee compensation. Most will be able to find a much better LTC insurance alternative for far less than $1,740 a year ($300,000 x 0.58% payroll tax). This is especially the case for households with two high income earners (i.e.: $400,000 or more in joint employee compensation) that can purchase a shared policy to receive discounts on their premiums.
- Individuals who want more control over their own LTC policy and do not wish to rely on the state to determine the policy’s terms and conditions for use later in life.
- Younger Washingtonians may also consider opting out because they anticipate working many years and paying into a system from which they will not receive more than $36,500 in benefits.
As with any topic I discuss, make sure to speak with your financial advisor — not all of the above mentioned items will apply to you. It is always best to work with your advisor to determine which assets to invest in. If you do not have an advisor, I encourage you to reach out to our team of experts at HFG.
MICHAEL TALLMAN, CFP®, CTFA
Senior Trust Officer, HFG Trust
