If you missed the news regarding the LTC Trust Act, passed in May of 2019, you’re not alone. You might not know much about this tax yet, but it’s going to cut Washington worker’s paychecks by hundreds of dollars each year. The LTC Trust Act, requires a payroll tax for Washington W-2 employees to help pay for future Long-Term Care expenses. The LTC Trust Act means to assist those who are unable to take care of oneself without assistance. The bill is listed as the Long-Term Services and Supports Trust Program – RCW 50B.04.

What Is It?
The Nation’s first publicly funded and state operated long-term care insurance is meant to assist Washington’s aging population, offering short-term benefits up to $100 per day with a lifetime maximum of $36,500. This assists in covering costs such as nursing homes, assisted living, home caregiver, home health care, wheelchair ramp costs, caregiver support, meal delivery and more, for one year.

How It’s Funded
Beginning in January of 2022, this tax is scheduled to be .58% of your payroll, 5.80 per $1,000, and will be paid entirely by the employee. All employee compensation is subject to this tax, including bonuses, stock-based compensation, severance, and other remuneration. Without an income cap this should be worrisome to higher wage earners, who may want to begin looking into other options as soon as possible to have a plan/policy in place before the deadline. For example, if you make $100,000 in W2 earnings, your tax will be $580. If you make $300,000, your tax will be $1,740.

Beginning in January 2024, the premium rate will be audited and will possibly increased and increased again every two years. “…lowest amount necessary to maintain the actuarial solvency of the long-term services and supports trust account created in RCW 50B.04.100.” .58% might seem small now, but they have already set the table for future tax increases.

Coverage Eligibility

• Employees who pay into the system for 10 years, with 5 of those years being consecutive
• You must reside in Washington state while receiving benefits
• Require assistance with 3 ADL (Activities of Daily Living) medication management, personal hygiene, eating, toileting, transferring, body care, bathing, mobility, dressing, cognitive impairment

Frustratingly, you could pay into this program for years, even decades and not be eligible for benefits when you need them most.

Why Purchasing an Individual Policy Might Makes Sense

  • Without an income cap, high wage earners may be able to obtain a superior LTC insurance alternative for far less, especially with households with high joint employee compensation. By opting out, you can redirect those payroll tax funds into a personal policy.
  • Individual LTC policies often provide more comprehensive coverage beyond the $100/day and $36,000 lifetime cap of the current Washington State plan.
  • The Washington State LTC benefit is not portable. If you plan on leaving Washington and retiring in another state, you will not receive benefits, even if you’ve been paying into it for years. Purchasing your own policy will give you freedom to use LTC expenses in the state you choose to retire in.
  • The LTC Act benefit is only eligible to the employee paying the tax. There may be an opportunity to get a benefit that protects both spouses through a joint insurance policy. This also helps if both spouses are W2 employees and both would be responsible for the tax but have significantly different income levels.
  • If you have an existing whole life policy, you may be able to add a Long-Term Care Rider to the policy, if available.

How to Opt Out

  • You only have one opportunity to opt out. If you are self-employed or have an LTC plan in place before November 1, 2021, with equal to or better benefits than Washington state’s LTC Act.
  • Complete and file a waiver application with state, attesting you have other LTC insurance.
  • Provide a copy of the waiver to current and future employers. If you fail to do so, and taxes are taken from your wages, you will not receive a refund for tax paid.

Note: If you are self-employed, and do not file for exemption and return to work at a later time as a W-2 employee, you will be subject to the LTC tax.

If you have questions on this new law and want to understand your options, send us an email at homer@kovergentwealth.com as soon as possible. We will review your situation and help you understand the options you have available to you.

Note: Opting out of Washington State’s LTC insurance is permanent. If an exemption is filed, an employee may never be deemed to be a qualified individual. RCW 50B.04.050

Personal LTC insurance is not available to patients who have had a stroke, Alzheimer’s disease or health certain disqualifying health issues. Talk to your advisor before completing and filing an opt out waiver with the state.