Kevin Rigg, Director of Financial Life Planning, Lead Advisor, CFP®, CPA
In June of 2019, Governor Inslee signed the Long-Term Services and Support Trust Act into law. It has since been renamed the “Washington Cares Fund”, but its purpose is unchanged: to create the first publicly operated long-term care insurance program. The program will be funded by a payroll tax on all compensation of W-2 employees in the state of Washington, to be assessed starting January 1, 2022, through mandatory paycheck withholding. There is a one-time window to qualify, permanently opt-out of the program, or be exempt from the tax, and the deadline for deciding is coming soon.
Confused? You are not alone! Read on for a brief primer on the Washington Cares Fund program benefits, payroll tax details, and personal planning considerations.
The Washington Cares Fund provides long-term care benefits of $100/day with a maximum lifetime benefit of $36,500. The program will be funded with a new payroll tax of 0.58% on all W-2 employees (self-employed individuals are exempt). Importantly, there is no cap on the amount of income to which the payroll tax applies, which means compensation of:
$10,000 will be taxed at $58
$100,000 will be taxed at $580
$1 million will be taxed at $5,800
To receive benefits under this new program, one must meet several requirements:
Unable to perform 3 of 10 activities of daily living (ADL)
Reside in the state of Washington at the time of the claim
Paid the tax for at least 10 years (with no more than a 5-year break) or for at least 3 of the last 6 years immediately preceding filing for benefits
You can permanently opt out of this program (and avoid the payroll tax), so long as you have your own long-term care (LTC) policy in place before November 1, 2021, and your policy provides benefits equal to or better than the new program. We believe it will nearly always make sense to opt-out and obtain your own policy if possible due to limitations of the new program such as these:
Benefits are only available if unable to perform 3 of 10 ADLs (most policies are 2 of 6 ADLs)
Benefits are not portable (cannot be used outside of Washington state)
Benefits are not LTC partnership qualified (in brief, partnership programs help protect assets from Medicaid’s asset recovery program)
Benefits are likely more expensive for many people due to no income cap on the tax
We are currently assessing the impact of this new program across our client base. If you are retired, don’t have W-2 income, live outside of WA state, or already have an LTC policy, you don’t have anything to worry about at this point. For everyone else, you can expect to hear from your advisor soon, with a recommendation regarding what needs to be done before the opt-out date of November 1, 2021.