What is the Long-term Care Tax?

The Washington state legislature recently passed the WA Cares Fund, formerly the Long-term Care Trust Act, to create a public long-term care benefit for Washington residents.

Beginning January 1, 2025, the new law would provide eligible residents with up to $100 per day, with a maximum total limit of $36,500, to pay for long-term care. The first of its kind program will be paid by a tax in which employees are required to contribute 58 cents per every $100 of income through a direct payroll deduction.

Currently, there is only a one-time deadline to qualify for an exemption from the WA Cares Fund payroll tax. In order to qualify for an exemption with their employer, individuals must prove they are enrolled in a private long-term care insurance policy. The policy must be purchased by November 1, 2021, and the policyholder must apply for the exemption from October 1, 2021 to December 31, 2022.

All Washington state W-2 workers are eligible to be taxed by the WA Cares Fund, including workers that reside out of the state. The tax applies to self-employed residents, military personnel, W-2 workers under the age of 18 and residents that commute into the state part-time.

Self-employed Washingtonians may choose to opt in to the WA Cares Fund but are not required to participate.

Employers and employees that are party to a collective bargaining agreement in existence on October 19, 2017, are not required to reopen the agreement or to comply with the WA Cares Fund law unless and until the existing agreement is reopened, renegotiated, or expires.

Should I Opt Out?

The WA Cares Fund is distributed after employees have paid the tax for either three of the past six years or ten years without a break of five or more years. To qualify for care, residents must require assistance with three activities of daily living (ADL), including: medication management, personal hygiene, eating, toileting, cognitive impairment, transfer assistance, body care, bathing, ambulation/mobility and dressing. Once qualified, individuals must receive the long-term care benefits from providers listed on a Washington state Department of Social and Health Services approved list.

For Washingtonians who make more than $75,000, or plan to at some point in their careers, it’s likely less expensive to obtain private coverage than opt into the program. Additionally, younger employees that would thus pay into the fund for decades would ultimately pay more in tax than they would receive in benefit.

According to the 2020 Genworth Cost of Care survey for Washington State, the average cost per month in Washington is $11,954 for nursing home care (in a private room), $6,750 for assisted living, and $6,670 for home health care.

Long-term Care Program Risk

Long-term Care Program Risks

The new law also has a few risks for individuals hoping to obtain long-term care coverage. According to the current law, the state could increase the taxation rate at any time, with no opportunity to opt out after November 1, 2021. Additionally, residents that move out of Washington state for longer than five years will forfeit benefits and premiums. Some individuals near retirement will also want to opt out of the program. In order to vest, the WA Cares Fund requires employees have worked and contributed to the fund for at least 10 years without a break of five or more years; or three of the last six years; and at least 500 hours per year during those years.

Notably, there is no cap on the amount an employee could pay in taxes. As such, highly compensated employees will contribute far more than the lifetime benefit cap of $36,500.