Three-minute legal tips: Washington's Long-Term Care Payroll Tax

A new payroll tax to fund long-term care in Washington state is set to begin once the new year rolls over to 2022.

Its goal — to provide long-term care coverage for every person who receives a regular paycheck in Washington — has prompted a long list of questions. Among them, Washingtonians want to know if they are covered under the payroll tax, how much the benefit will cost and when they would be eligible to use it.

Peter Nicolas, the William L. Dwyer Chair in Law at UW Law, takes three minutes to help us better understand these issues and more.

Read the Transcript

Peter Nicolas: Hi my name is Peter Nicolas and I am the William Dwyer Chair in law at the University of Washington School of Law.

Three-Minute Legal Tips: Can you tell us about the Washington state long-term care payroll tax?

PN: It is a first of its kind payroll tax of 0.58% of an individual's earnings and it is used to fund a long-term care insurance program that is available to all eligible workers in Washington state.

TMLT: Does this affect all workers in Washington?

PN: It only applies to people who earn what are known as w-2 wages, which is essentially someone who earns a regular paycheck. If you are self-employed, the program currently does not apply to you, although there is a mechanism for opting in if that's something you wish to do.

TMLT: Are people able to opt out of the program?

PN: They are, but there's a very limited window in which to do so. You need to make sure that you already have long-term insurance as some people do. Some people have had it for years. Or you need to secure a policy by November 1st of this year in addition to doing that you need to apply for an exemption and you need to submit that application sometime between the October 1st of this year when the state will make that form available and December of 2022. You then need to get an approval from the state and once you get that you need to file it with your employer in order to prevent the payroll tax from being taken out of your paycheck.

TMLT: Why would someone want to opt out?

PN: If you decide to opt out it's because you've done a cost-benefit analysis and determined that you can do better on the private market than you'll get with this program. This program is a one-size-fits-all. It gives everybody the same benefit which is up to a hundred dollars a day with a lifetime cap of $36,500, both adjusted for inflation. So, the benefit is fixed for everybody, but the tax is unlimited so if you're a very high wage earner you're going to be paying a large amount of money, much more than you might pay to buy a private policy. And so a high wage earner might want to opt out. If you're not going to be working long enough to vest into the program or if you're worried that the tax will continue to climb because there's no guarantee that tax won't climb in the future.

TMLT: Can people still use the benefit if they move to another state?

PN: As the program is currently designed, they cannot. You need to be living in Washington to draw on it. As I understand it there's an effort underway to try to change that aspect of the program, but currently you need to know that you're going to be retiring here if you hope to receive the benefits

TMLT: Are the benefits transferable to a spouse or dependent?

PN: They are not. Each person earns the benefit based on their own payroll taxes being paid into the program.

TMLT: How long does someone have to work before they can receive the benefit?

PN: As a general rule you have to work 10 years in order to earn the benefit, which means someone who's only a few years away from retirement will pay the tax but won't be vested into the program. There are a few nuances that'll allow someone to draw on it if they've worked less than 10 years, but those are pretty unusual.