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Dear Friends and Neighbors,
The latest tax news includes a new long-term care payroll tax on W2 income. Approved by the state in 2019 by the Legislature, a publicly funded, long-term care benefit bill — House Bill 1087 — created this new tax. The Long-Term Services and Supports Trust program payroll tax begins on Jan. 1, 2022. All working Washingtonians will pay $0.58 for every $100 of their income, including hourly wages, salaries, bonuses, and company stock. Job providers will collect premiums from their employees the same way they do for the Paid Leave program.
To qualify for the long-term care benefit, wage-earners must pay the new tax on a minimum of 500 hours per year for at least 10 years without a break of five years or more within those ten years, or three of the past six years at the time you apply for the benefit. If they qualify, wage-earners who pay into the program will receive a maximum lifetime benefit of $36,500 starting in 2025.
There are several reasons I was a “no” vote on this legislation. First, and most importantly, acquiring this type of insurance coverage should be a personal choice, not mandated by the state. Wage-earners have only two choices: pay the tax or opt out by buying a private plan. And most importantly, many hard-working Washingtonian individuals and families can’t afford yet another tax or expense. A recent story from the Associated Press does a good job explaining the decisions facing many wage-earners.
Here are some other reasons the plan is objectionable:
- If a worker retires or moves out of state, their benefits will be forfeited.
- Workers retiring within three years have no chance to benefit, but are not exempt from the payroll tax.
- Those who live in another state, but work in Washington, will be forced to pay the tax, but will not be eligible to receive benefits from the program.
- The plan costs versus benefits margin is abysmal for most working Washingtonians. Some estimates put the state-managed plan projection costs at nearly three times that of private insurance.
- It’s extremely likely in years to come very real, large tax increases will be needed to keep this program afloat.
During the 2021 legislative session, the majority party pushed through House Bill 1323, which moved up the timeline for wage-earners to opt out of the long-term care payroll tax, setting a new timeline for self-employed individuals to opt in, and allowing disabled individuals before the age of 18 to qualify.
Here’s what that means for many of us: If you prefer not to take part in the state-managed plan, there is only a short window of opportunity remaining to opt out by purchasing a private plan. Once an eligible private plan is purchased, individuals must apply for an exemption from the program between Oct. 1, 2021, and Dec. 31, 2022.
To learn more, House Republicans created a webpage that includes frequently asked questions and facts on the Long-Term Care Act payroll tax.
It’s an honor to serve you!
Sincerely,
Carolyn Eslick
