So, the Washington Cares Fund (“Act”) passed in 2019. But what did that mean to you, your employees, and your business? It was set to begin collecting payroll taxes from Washington employees last month to help pay for the LTC expenses of WA residents. This was and is huge! WA identified a pressing need to make long-term care more affordable and put a plan in place to address it. As we all know, LTC can be very expensive and isn’t covered by Medicare.
WA Cares was created to assist those who may need long-term care during their lifetime, allowing employees to contribute to a trust, while they are working. They can later access the benefits when needed, rather than rely on family members or worry about qualifying for Medicaid.
However, just last month, Governor Inslee signed bills to delay and modify the act. So, what do those adjustments now mean?
New changes under House Bill 1732 include:
- The start of the payroll tax was delayed to July 1, 2023;
- Benefits will not be available until July 1, 2026;
- Any premiums collected from an employee prior to July 1, 2023, shall be refunded to the employee within 120 days of the collection of the premium; and
- Workers born before January 1, 1968, who have not met the 10-year vesting requirements under the program’s current structure, will be eligible to receive partial benefits based on the number of years paid into the program (if they have paid the payroll tax for at least one year).
And the revisions under House Bill 1733 allow an employee to apply for an exemption from the program if they are:
- A veteran of the United States military who has been rated by the United States Department of Veterans Affairs as having a service-connected disability of at least 70 percent;
- A spouse or registered domestic partner of an active-duty service member of the United States Armed Forces;
- Working under a non-immigrant visa for temporary workers and employed by an employer in Washington; or
- Employed by a Washington employer but have a permanent address and primary residence out of state.
An employee who receives an exemption is permanently ineligible from receiving benefits under the program unless their exemption is discontinued because they no longer meet the exemption criteria.
Now, why is this important?
Simply put – it’s hard to be an employer! Employers are in an ever-changing landscape of micro taxes. At PayNW, we aim to educate not only our clients, but everyone who is impacted by new tax laws. This most recent law was particularly challenging because it was passed, then put on “hold” with the governor (suggesting that employee deductions be taken), then officially passed in the House and Senate with instructions to refund everyone the tax liability that had been collected thus far. That’s a lot for employers to keep track of, when you’re busy enough running a company.
A major pro of this law is that it will provide affordable long-term care for employees who would otherwise not have coverage or savings to cover the cost of care should they need it. On the other hand, the benefits can only be received if you reside in Washington, so if you move out of state, you lose all funds paid into the trust. It’s not portable like private insurance plans are. In addition, there’s a cap on lifetime coverage of $36,500. However, there isn’t a cap on taxable wages, so employees who are highly compensated or new to the workforce may pay more into the fund than the benefits they receive during their lifetime.
How much will it cost per paycheck?
The tax is 0.58% of gross wages or $.58 per $100.00. So, for every $10,000.00 in wages earned, you’ll pay $58.00 to the State for this program. The tax will apply to base pay, as well as other earnings such as commissions, bonuses, and overtime. Tips are not included in the tax calculation. Employers do not contribute to this tax – it’s entirely employee paid. And if you’re self-employed, you can opt-in, but it’s not mandatory.
Can people opt out of the tax?
Here’s another tough one. The original law stated the following… To opt out, you needed to purchase long-term coverage by 10/31/2021 (if you didn’t already have it). Then you will need to apply for a waiver by 12/31/2022. There will only be this one opt-out window. Nothing regarding exemption was mentioned in the revised law, so…do employees get another crack at exemption? Or, are they sticking to the original dates even with the revised start date? Should an employee who purchased private insurance keep paying to ensure they are exempt in 2023? Or, would they be OK to cancel now and re-insure in 2023? These are questions employees are asking that no one can answer right now.
The revised law also allows for workers who live out of state and work in Washington – military spouses, workers on non-immigrant visas, and certain veterans with disabilities – to opt out of the program if they choose. Exemption for those reasons can be requested starting 01/01/2023.
If you’re still unsure about how this may affect you, that’s totally understandable! If you’re an individual with questions, it’s best to reach out to your employer. And if you’re a business, talk to an HCM specialist today.