Jun 15, 2021 Washington State Long Term Care Payroll Tax
Washington state passed a new law that aims to provide long-term care (LTC) coverage to residents starting in 2025. To pay for this benefit, you will see a new Washington state long term care payroll tax starting in 2022. There is a one-time option to opt out, but you must take action now! To opt out you must have a long term care policy in place by November 1, 2021. Many long term care specialists are only accepting application through early July to ensure the policy will be in place by the November deadline. Keep reading to find out if you should try and opt out.
What is the benefit?
The potential benefit through the state is $100 per day up to a maximum lifetime benefit of $36,500 to cover expenses associated with activities of daily living like dressing, bathing, eating, etc. To become eligible for the benefits, you must pay into the system for 10 years OR pay in for 3 of the last 6 years prior to the application being submitted. You must also work 500 hours per year during those years. The benefit is not available to those already retired. For additional details, you can read more at: http://www.wacaresfund.wa.gov/
What is the tax?
The tax is 0.58% on employee wages, so for every $100,000 earned the tax will be $580. The tax is counted on wages, stock-based compensation, bonuses, paid time off and severance pay. There is no cap on the wages that can be taxed.
Self-employed individuals and owners of S-Corps are exempt from the tax, but can choose to opt in to the program. If a self-employed person plans to return to work as a W2 employee in the future, they may want to opt out now so they won’t have to pay the tax when they return as a W2 employee.
Who should consider opting out?
There are a few groups of people that should consider opting out of the Washington State Long Term Care payroll tax:
- Employees that are higher income earners (Males $125,000 at 40 years old or $247,000 at 65 and females between $205,000 at 40 and $404,000 at age 65)
- Employees new to the workforce (but over 30 years old) that would pay into the fund for decades and pay more than they would receive in benefits.
- Employees that plan on retiring and moving out of Washington State
- Employees who can obtain long term care through their employer sponsored plans.
If you fall into one of these groups and have not been contacted by your advisor, please reach out to your advisor to talk about your options. You only have one chance to opt out and applications need to be submitted as soon as possible.
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Market Update: February 2023