Washington State New LTC payroll Tax

[JoJo]

Searched and didn't see anything on this subject.

Here's the description:  https://www.wsha.org/articles/new-state-employee-payroll-tax-law-for-long-term-care-benefits/

Read one article that states that anyone that makes or will make $75,000 a year or more should purchase a private plan (there is a one-time opt out, not sure how they plan to monitor who keeps the private plan or not, seems extra burdensome to monitor). 

Tax is on W-2 and from what I have read provides very little benefit (not more than a couple months of care).

[bacchi]

Do the math. The tax is so small (right now) that it's worth it if you only work ~20 years, unless you're making a huge W2 income.

[HPstache]

I went down the rabbit trail and investigated my options for private LTC to see if there was a "cheaper & better" or even "same cost with more benefit" option from the private market.  I had my insurance person quote it out for me.  What I found was that many traditional LTC companies stopped quoting into Washington.  I was quoted a Whole-Life-Like policy that mixed an investment & insurance which was a red flag right off the bat, I've never been a fan of mixing investments with insurance.  What I found was that for about 2X per month I could get about 4X the benefit of the WA public plan.  I told my insurance person I was not interested in this and will reluctantly auto-sign up for the WA plan in November.

Some things to consider that are a benefit of going private would be (all of which my insurance provider pointed out):
1. Private LTC insurance is a set amount, whereas the state will (most likely) increase the percentage going toward the LTC program in the future
2. Your salary will most likely go up over the years increasing the amount required to be covered by the state LTC program
3. The qualifications to be able to use LTC funds are very strict as compared to a Private LTC policy
4.  There may be a potential to quietly cancel the policy down the road and fly under the radar

[JoJo]

Does anyone know what happens if you only live in WA for a few years then move out of state?

I just retired from a job in WA and am currently nomadic.  Mail is coming to a friend's house.  I would like to get a new home at some time in the future but it's likely a few years away and most likely won't be WA.  I have some deferred comp that's going to be paid via W-2, and have calculated this new tax will cost me a few hundred per year.  Debating if it's worth getting residence in another state (one that's tax and nomad friendly).     But... if paying in for a couple years makes me eligible to get a benefit out of this, might be worth keeping the WA address. 

[HPstache]

Does anyone know what happens if you only live in WA for a few years then move out of state?

I just retired from a job in WA and am currently nomadic.  Mail is coming to a friend's house.  I would like to get a new home at some time in the future but it's likely a few years away and most likely won't be WA.  I have some deferred comp that's going to be paid via W-2, and have calculated this new tax will cost me a few hundred per year.  Debating if it's worth getting residence in another state (one that's tax and nomad friendly).     But... if paying in for a couple years makes me eligible to get a benefit out of this, might be worth keeping the WA address.

There is a way to opt out if you are planning on moving out of WA in the next certain number of years.  You would have to look into the details, but I am fairly certain it's there because I have heard of two people in my circles that plan on moving out of state and believe they are able to opt out in under these circumstances.

[YttriumNitrate]

Does anyone know what happens if you only live in WA for a few years then move out of state?

Eligibility to Receive Benefits Under the LTSS Program
Starting January 1, 2025, an individual may receive benefits from the LTSS program if:

    They are a Washington resident;
    At least 18 years old;
    Have either temporarily or permanently vested; and
    The Department of Social and Health Services (DSHS) has determined they need assistance with at least three activities of daily living (bathing, dressing, eating, personal hygiene, etc.).

Vesting: An employee is temporarily vested if they have worked a minimum of 500 hours per year for three years within the last six years (from the date of application of benefits). An employee is permanently vested if they have worked at least 500 hours per year for at least 10 years, with at least five of those years being consecutive.

https://www.wsha.org/articles/new-state-employee-payroll-tax-law-for-long-term-care-benefits/

[Samuel]

Does anyone know what happens if you only live in WA for a few years then move out of state?

I just retired from a job in WA and am currently nomadic.  Mail is coming to a friend's house.  I would like to get a new home at some time in the future but it's likely a few years away and most likely won't be WA.  I have some deferred comp that's going to be paid via W-2, and have calculated this new tax will cost me a few hundred per year.  Debating if it's worth getting residence in another state (one that's tax and nomad friendly).     But... if paying in for a couple years makes me eligible to get a benefit out of this, might be worth keeping the WA address.

There is a way to opt out if you are planning on moving out of WA in the next certain number of years.  You would have to look into the details, but I am fairly certain it's there because I have heard of two people in my circles that plan on moving out of state and believe they are able to opt out in under these circumstances.

I've not seen that written about anywhere. I've only heard there is the single, one time opt out opportunity (now) if you provide proof of private coverage.

The million dollar question (well, maybe not that expensive) is whether you can opt out now then cancel the private insurance and never need to provide proof of private coverage again. The law as currently written seems to allow it and that seems to be what a bunch of the high earners at my work are planning to do. I could definitely see the law being changed to bite them (and possibly me, I haven't fully investigated my options yet) in the butt.

It's clear, though, that if you are retiring in less than 10 years or retiring outside Washington you'll be paying in for no benefits.

[JoJo]

Thanks Samuel, that's what I suspected.

[FiveSigmas]

FWIW, Bogleheads has a very active thread on this:

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=340307

I haven’t been following the thread closely, but a major topic of conversation is how to avoid the tax by enrolling in a low-cost, low-benefit 3rd party LTC insurance program. Apparently, insurance companies are deluged with high-earners trying to apply by the cut-off date (the law offers a limited-time, grandfathering exemption).

[SeattleCPA]

I think if you're looking into this now, it's possibly too late.

Some info at our CPA firm blog here (from May...): https://nelson.cpa/wa-cares-fund-and-small-business/

BTW, weekend before last, at a dinner party, was talking with an insurance agent who had delayed retirement because of all the work he was doing to help clients with this new payroll tax. He was telling me that they had stopped taking applications for LTC because they'd figured they wouldn't be able to process any more.

He also told me they expect to see more than 80 percent of customers cancel once they get their permanent exemption.

I think the smart play here--probably too late to act on now--is to get a policy, request the permanent exemption, then cancel once it's clear your permanent exemption has gone through.

[Samuel]

I think if you're looking into this now, it's possibly too late.

Some info at our CPA firm blog here (from May...): https://nelson.cpa/wa-cares-fund-and-small-business/

BTW, weekend before last, at a dinner party, was talking with an insurance agent who had delayed retirement because of all the work he was doing to help clients with this new payroll tax. He was telling me that they had stopped taking applications for LTC because they'd figured they wouldn't be able to process any more.

He also told me they expect to see more than 80 percent of customers cancel once they get their permanent exemption.

I think the smart play here--probably too late to act on now--is to get a policy, request the permanent exemption, then cancel once it's clear your permanent exemption has gone through.

I got a bit lucky. My (very large) employer managed to negotiate guaranteed issue whole life plans with LTC riders that satisfy the state opt out requirement. For $28 a month I now have a plan that'll let me sidestep the state mess. I'll hold it for a year or two until I know what kind of revisions to the law will happen. I could see them adding in yearly coverage checks with so many people expected to opt out and then cancel. Worst of all worlds would be to opt out, cancel, then later be forced to show coverage every year and have to reacquire insurance or pay the state tax for no benefit since you had already opted out.

[SeattleCPA]

I could see them adding in yearly coverage checks with so many people expected to opt out and then cancel. Worst of all worlds would be to opt out, cancel, then later be forced to show coverage every year and have to reacquire insurance or pay the state tax for no benefit since you had already opted out.

Good points above. Good ideas...

I do think program will change. One reads analyses that say the financing isn't really workable. I.e., the premiums are too low to keep program solvent over the long run...

BTW not an expert on that stuff. Just a guy trying to help clients not get hosed.

[seattlecyclone]

I could see them adding in yearly coverage checks with so many people expected to opt out and then cancel. Worst of all worlds would be to opt out, cancel, then later be forced to show coverage every year and have to reacquire insurance or pay the state tax for no benefit since you had already opted out.

Good points above. Good ideas...

I do think program will change. One reads analyses that say the financing isn't really workable. I.e., the premiums are too low to keep program solvent over the long run...

The premiums don't need to pay for 100% of the benefits to make the program a success. As long as this program's deficit is less than what the state would have otherwise spent to care for these folks through Medicaid, it's a win for the state. And in the long run people with above-average incomes won't have an escape hatch, meaning more money flowing into the program.

[Samuel]

One of the many things I'm not clear on with this is whether the program has to be self funding or if the state can transfer money from elsewhere to cover the shortfall. There's already the issue of the funding models falling seriously short because they're built on being able to invest the money in the market, which is currently not allowed under the state constitution and the referendum to change that failed (https://ballotpedia.org/Washington_Senate_Joint_Resolution_8212,_Authorize_Fund_Investment_of_Long-Term_Services_and_Supports_Trust_Account_Amendment_(2020))

[JoJo]

I decided to leave the state.  I'm becoming a resident of SD as I don't plan on spending any time in Washington state at any point in the future... this was the kick in the pants to change my mailing/residency.  I'm recently retired, but found out my deferred comp was coming in the form of W-2, thus taxable under this new tax.   

[Samuel]

I decided to leave the state.  I'm becoming a resident of SD as I don't plan on spending any time in Washington state at any point in the future... this was the kick in the pants to change my mailing/residency.  I'm recently retired, but found out my deferred comp was coming in the form of W-2, thus taxable under this new tax.

Makes sense. It's not a lot of money but if you're never going to see any return from it...

Uncertainty around whether I'll be retiring in WA is a main reason I wanted to sidestep this program if at all possible.

[JetBlast]

Resurrecting this thread to say that this law is a great example of why so many people dislike government.

The opt out if you have private insurance is an absolute boon to the insurance industry while leaving ambiguity about the future need to maintain private insurance. It also robs the program of the income from high earners that would help fund the insurance. So all the high earners opt out and keep their fingers crossed they can drop their private plan in a year or two, while middle and low income earners get locked in because it’s cheaper than a private plan for them.

Then there’s the lack of a sliding benefit for those close to retirement. Being forced to pay in while being told you won’t have paid in long enough to receive the benefit has to be infuriating. Don’t forget the out of state residents that still have to pay, but again cannot receive benefits. But they’re some other politician’s problem.

For me, the opt out is an easy choice. My union got a group rate that will get me $100,000 worth of coverage for $36 per month, versus paying about $80 per month tax for $36,500 benefit.  And it’s likely that in the next few years my income would increase to the point that the tax would exceed $100 per month. At this point I’m just waiting on the exemption approval letter from the state.

[Samuel]

It is remarkably badly thought out and implemented. It's hard to find anyone who is willing to defend the scheme at this point. I feel worst for the youngsters. Most people under 40 who aren't working for a big employer who can provide access to a better alternative will be paying this tax for decades with no guarantee they'll see anything from it.

I also got access via my employer to an alternative with more benefits for half what the LTC tax would cost me per month. Seeing as I'm not at all sure I'll have W2 income for another 10 years or will still be in WA when I may require long term care (both requirements to see any of the benefits) opting out is a no brainer.

[thedigitalone]

I was fortunate to get a short-term care insurance plan through my spouses employer and I have already received my official 'Exemption Status' letter from the Employment Security Department. We will cancel the private policy at the end of Q1 2022 when we're past the forever opted out window since funds will have been collected by that point we won't have contributed.  My companies HR team has no idea what to do with the letter at this point or how to not collect the tax, they are waiting to hear back from ADP.

To opt out all you have to do is check a box stating that you have alternative care insurance in place, there is no verification or checking at this time.

Here's the Opt Out link: https://wacaresfund.wa.gov/apply-for-an-exemption/