You’re hearing a lot in Washington State right now about the new long term care tax that will be paid by employees through payroll deductions starting in 2022. The official program is called the WA Cares Fund. Washington State is the first state in the nation to develop a plan like this and employees and employers (including self-employed individuals) must understand the details in order to make an informed decision about what actions to take, because it could impact them or their company.
The WA Cares Fund was created as an attempt to deliver a solution to the high costs of long-term care. The new WA Cares Fund website states that “long-term care is expensive, it is not covered by Medicare and most of us will not have the savings to pay for it. Seven in 10 of us will need long-term care during our lifetimes, and most older adults today end up relying on family members to care for them or impoverishing themselves to qualify for Medicaid.”
WA Cares Fund Basics
Here are the basics for the WA Cares Fund:
|Tax Amount||58 cents per every $100 of income (or .58%) through an employee payroll tax deduction|
|Coverage||Once vested, total lifetime benefits are $36,500 ($100/day) regardless of how much tax paid in, which will be adjusted for inflation|
|Portable||No (benefits only for eligible participants in Washington State and will not transfer or refund if you move out of state)|
|Exemption||Can permanently opt out of program but must have your own qualified long term care policy that meets specific requirements. The policy must be in place prior to November 1, 2021, and the exemption must be filed between October 1, 2021, and December 31, 2022|
|Benefits Eligibility||Benefits start being paid out on January 1, 2025
Eligible participants must have paid in for 3 of the last 6 years at the time you apply for the benefit or have paid in for 10 total years at any point in your life without a break of 5 or more years within those 10 years and must have worked 500 hours per year during those years.
To claim benefits, vested participants must require assistance with 3 out of 10 Activities for Daily Living (ADLs) and be 18 years old and a current resident of Washington state.
How do I get an exemption?
If you are planning on getting an exemption, you will want to move fast. Although the policy must be in place prior to November 1, 2021, insurance companies are getting flooded with requests for long term care policies to meet the minimum requirements outlined in the WA Cares Plan. Some insurance companies have decided not to write policies for this scenario or are requiring heavy up-front premiums. Exemption applications will be available starting October 1, 2021.
Once you have the policy in place, Washington Employment Security Department (ESD) is launching a website where you can attest that you have long-term care that meets the criteria for the exemption. After you have done this, the state of Washington will provide you with an official letter that you must provide to your HR department so that they can update payroll to stop deducting the premiums from your paycheck.
What do I do if I’m self-employed?
Only W-2 employees are required to opt into the WA Cares Fund. If you are self-employed, you are not automatically opted into the plan. Starting on January 1, 2022, any self-employed individuals may choose to participate. They may elect this option by January 1, 2025, or within three years of becoming self-employed for the first time.
If you choose to opt into the plan, your premium is .58% of your net earnings.
What are the impacts for S-corporation shareholder employees?
Because S-corporation shareholder employees are required to receive reasonable compensation in the form of W-2 wages, they will be required to opt into the WA Cares Fund like any W-2 employee and are required to pay in .58% of gross wages as an employee payroll deduction.
What do I have to do as an employer?
If you’re an employer, you’re required to collect premiums from your employee beginning on January 1, 2022 (just like you already do for the WA Paid Leave program). Employers won’t pay these contributions into the WA Cares Fund, only employees.
If there was a quarter with no wages or employee hours, then you do not have to file a report.
If you receive an ESD exemption letter from an employee, you must not collect any WA Cares premiums from employees who have provided an official ESD exemption approval letter. The letter will list the effective date of the employee’s exemption. It is recommended that you keep a copy of all employees’ approval letters on file.
Are you ready for some guidance?
At Black Sheep Accountants, we feel that it’s important to provide this information in a timely manner because this impacts all our clients and any employed or self-employed individuals working in Washington state.
If you are a small business owner and are ready to consider working with a tax planning firm that’s got your back, please click here to get started.