Washington’s Long-Term Care Tax Deductions Start July 1, 2023

May 24, 2023

In a bad case of déjà vu, employers are reminded to start withholding a 0.58% premium tax on their Washington employees effective July 1, 2023.

Brief flashback – Back in 2019, Washington Governor Jay Inslee signed the Long-Term Services and Supports Trust Act, creating a first-of-its-kind state-mandated long-term care Trust dubbed the WA Cares Fund. This Fund is meant to pay a small amount of long-term care benefits (up to $36,500 adjusted for inflation per lifetime) to Washington residents beginning July 2026.

The legislation was not well received. Opponents filed a class action lawsuit. Dissatisfaction with the law was so great that its January 1, 2022 roll-out was recalled and postponed. Since then, the Legislature has “made key improvements” to the program, and tax collection begins anew as of July 1, 2023. Payments will be made with your Washington quarterly payroll tax returns. Self-employed individuals can opt-in “as soon as applications are available.”

Cliff Notes for Oregon employers with Washington remote workers: If you have determined that your employees who work from home in Washington should be paying the WA Paid Family & Medical Leave tax, they will also owe WA Long-Term Care premiums. If you have employees working from home in Washington who are not regularly scheduled to work at least one day per week onsite in Oregon and you are not yet withholding WA Paid Family & Medical Leave taxes and submitting them to the WA Employment Security Department (“ESD”), we should probably talk.

The “key improvements” the Legislature claims to have made did not actually change the original legislation a great deal. For instance, it did not extend the time for Washington residents to establish their own long-term care insurance policy so that they could opt out of the program. If an employee did not purchase coverage prior to November 1, 2021 and did not apply for and receive an exemption prior to December 31, 2022, this opt-out is no longer available.

New Exemptions and EMPLOYEE Obligations

However, the state did add an exemption for employees who live outside Washington and would therefore not be benefit eligible. It is the EMPLOYEE’S responsibility to apply for an exemption and provide proof of the exemption to his or her employer. EMPLOYERS should start making the tax withholdings effective July 1, 2023 until the employee provides proof of the exemption. Premiums withheld prior to proof of exemption are not refundable, so EMPLOYEES should take note. Apply for an exemption here: WA Long Term Care Exemptions - Exemption Information.

In addition to non-residents, the following individuals may apply for an exemption. Again, it’s the EMPLOYEE’S responsibility to apply and provide his or her employer with proof of exemption:

• Veterans with a service-related disability of 70% or more may qualify for a permanent exemption;
• Spouses or domestic partners of active-duty service members may opt out, though the exemption expires when the service member is discharged or upon dissolution of marriage or domestic partnership;
• Employees with a nonimmigrant visa for temporary workers may opt-out though the exemption expires if the employee becomes a permanent resident or citizen.

One other enhancement is that the law was changed to allow for individuals born before January 1, 1968 to be eligible to receive 10% of the maximum benefit for each full year they have paid premiums. Before this change, older workers may have found themselves paying tax for a benefit they would never qualify for (it takes 10 years working at least 500 hours per year without a break of five or more years to accrue lifetime coverage).

However, the WA Cares Act’s biggest criticism remains unaddressed – a retiree can never move out of Washington and take their benefit with them. The Trust Commission has submitted an actuarial analysis calculating what certain portable features may add to the cost of the plan. The Legislature has a couple of years to decide how to proceed, as benefits will not start paying prior to July 1, 2026.

If you have questions regarding Washington’s Long-Term Care tax, Bullard Law will continue to monitor and provide updates. For further information, contact your Bullard Law attorney.

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