You may have heard that a first-of-its-kind program, a result of the Washington State Long Term Care Trust Act, instituting a compulsory short-term care benefit is going into effect soon in Washington. What you may not know is there is a way to become exempt from this tax, but it requires quick action. Read on to find out more about who is affected and how you can avoid the tax.
A 0.58% payroll tax, withheld quarterly by employers, will fund a short-term care benefit. It is vested by individuals who work a minimum of 500 hours per year who pay premiums for at least 10 years without a break of five consecutive years OR who pay premiums for three of the last six years. Providers will be reimbursed directly at rates comparable to Medicaid, but benefits may be constrained. This tax will be mandatory for all W-2 employees, and the first payroll deductions will begin in January 2022.
However, long-term care (LTC) insurance policyowners may opt out of this tax permanently by applying for an exemption between October 1, 2021 and December 31, 2022 as long as they have purchased LTC insurance prior to the effective date of this law, July 24, 2021. For most wage earners, opting out and purchasing an individual policy likely makes more sense as (1) the payroll tax could be redeployed to more competitive options in the open market, (2) people who don’t plan on living in Washington after retirement wouldn’t receive the benefit, and (3) people who plan to retire in less than 10 years would not receive the benefit.
We encourage you to learn more about this tax and possible LTC policy exemption by reviewing the following resources:
The WA LTC Act
Information about the Trust Act
Advantages of the Trust Act
Disadvantages of the Trust Act
How to Opt Out
Comments