WA Long-Term Care Tax Delayed

On Friday, December 17, Washington Governor Jay Inslee announced that the WA Cares payroll tax on Washington employees will be delayed until legislators have an opportunity to modify the long-term care (LTC) program the tax is intended to fund. Our previous alerts on the Washington Long-Term Care Act are copied below for reference.

• Governor Inslee has ordered the state’s Employment Security Department (ESD) not to collect premiums from Washington employers “until the Legislature sorts through [issues with the LTC program].”
• Employers will not incur penalties or interest for failing to withhold LTC premiums from their employees while the implementation of the program is delayed.
• Although they stopped short of directing employers not to withhold LTC premiums from employees’ pay, Washington’s House Speaker Laurie Jinkins and Senate Majority Leader Andy Billig have encouraged employers to delay collecting payroll taxes for the LTC program from their employees until legislation is passed to extend the program’s implementation date.
• Possible changes to the LTC program may address problems with the plan’s design that could result in groups of workers being required to pay into the program, but unable to receive benefits. These include:
  • Employees who work in Washington but live in another state
  • Older workers who retire before becoming vested in the program
  • Washington residents who become vested in the program, but retire to another state
  • Military families who live in Washington temporarily
• The Legislature may also address the issue of ensuring that employees who receive an exemption for having a private LTC policy continue to be covered by LTC insurance. Under the present design, there is no mechanism for ensuring that employees with an exemption maintain their LTC coverage once the exemption is approved.
• Proposed legislation would give Washington residents the option of opting out of the LTC program at any time. The original LTC Act provided only for a one-time, limited opportunity for employees to opt out by securing private coverage. Many private insurance companies had recently halted sales of private LTC policies to Washington residents over concerns that individuals would cancel the coverage once they had secured an exemption.
• Employers should hold off on collecting LTC premiums from their employees in Washington State. Piper Jordan will continue to monitor developments with the Washington LTC program and provide updates as they become available.

WA Cares Fund Exemption Update

The State of Washington has announced that exemption applications for its long-term care (LTC) insurance program, the WA Cares Fund, will be available beginning October 1, 2021. Our most recent update on the WA LTC program is copied at the bottom of this alert for reference.

• The exemption process for the WA LTC program is a once-only opportunity. Employees must secure private LTC coverage before November 1, 2021 and apply for an exemption by December 31, 2022. After this date, employees will no longer be able to apply for an exemption.
• Once an exemption is approved, it is permanent – employees granted an exemption can never participate in or receive benefits from the WA Cares Fund.
• Exemptions are granted on a go-forward basis. If employees qualify for an exemption but delay application and are approved after January 1, 2022 (the date premium collection begins), any premiums collected prior to exemption approval will not be returned.
• When an employee presents proof of exemption to their employer, no further premium deductions may be collected from that employee’s pay.

UPDATE: WA Employee-Funded Long-Term Care

A recent change to Washington’s long-term care law will allow employees who have purchased private LTC coverage by November 1, 2021 to opt out of the state LTC program. The LTC program, which was established by legislation passed in 2019, will be funded through an employee tax currently set at 0.58 percent of wages. Employees with private LTC coverage will be exempt from the tax.

• Under proposed rules for implementing the exemption process, employees who are 18 years of age or older may apply to the Employment Security Department (ESD) for an exemption from the LTC premium assessment if they have other long-term care coverage. Such coverage must be purchased prior to November 1, 2021.
• The ESD is only required to accept applications for exemptions from October 1, 2021 – December 31, 2022.
• Approved exemptions will take effect at the beginning of the quarter immediately following the approval of the exemption.
• An employee with an approved exemption is permanently barred from participating in or receiving benefits from the LTC program.
• Premiums paid before an exemption is approved, as well as premiums paid after an employee secures private coverage but before the employee’s exemption is approved, are not refundable. However, employers may not deduct any premiums after employees attest to having private coverage, and must refund any premiums deducted after notification. The employer will not be entitled to a refund from the ESD for any premiums erroneously deducted and remitted.
• Employers should notify their employees of the November 1, 2021 deadline for purchasing private LTC coverage. Employers who wish to offer a group LTC plan to their employees as an alternative to the state LTC program must ensure that the coverage is in place prior to November 1, 2021.

Although we have sent out previous alerts on the Washington LTC program, additional details have become available since those alerts were issued. Updated information on the LTC program is included below.

Coverage

• The LTC mandate applies to any employee who is covered by Washington’s paid family and medical leave law and any W-2 employee for whom one of the following is true:
  • They perform their work in Washington
  • Their base of operations, and some of their work, is in Washington even though their service isn’t localized in any state
  • They have no base of operations, service area, or specific location from which their work is directed/controlled, but they live in Washington
• If employees are covered under a collective bargaining agreement (CBA) that was in effect on October 19, 2017, the LTC law will not apply to them until the CBA expires or is renegotiated.
• Casual laborers, independent contractors, and any employees under the age of 18 are not covered, although self-employed individuals may opt in if they follow the law’s guidelines for doing so.

Covered Wages/Deductions

• The premium contribution rate (currently .58%) will be adjusted every two years starting in 2024.
• For the purpose of assessing premiums, wages are defined broadly to include:
  • Salary/hourly wages
  • Cash value of gifts, goods, or services (including meals/lodging)
  • Commissions/piecework
  • Bonuses
  • Holiday pay/other employer-paid time off
  • Separation pay
  • Stipends/per diems
• The following are excluded when calculating employees’ wages:
  • Reimbursed job-related expenses
  • Supplemental paid disability benefits
  • Employer-paid life, health, disability, or accident insurance
  • Retirement benefits

Implementation

• The development, implementation, and administration of the LTC program will be handled by several departments:
  • A new department, the Long-Term Services and Supports Trust, will be responsible for establishing payment maximums and proposing eligibility criteria and qualifications for long-term care providers.
  • Employee premiums will be collected by the Employment Security Department (ESD).
  • The Department of Social and Health Services will determine eligibility and administer benefits.
  • Other aspects of the program will be managed by the Health Care Authority and Office of the Actuary.
• Employers must collect the 0.58 percent premiums and remit them to ESD beginning January 1, 2022, in a manner to be determined by the ESD.

Eligibility

• Eligible beneficiaries will be able to access benefits to be paid to registered LTC providers starting January 1, 2025.
• Individuals will be eligible if they have worked at least 500 hours per year that counts toward eligibility, and have paid premiums for the equivalent of
  • ten years without interruption of five or more consecutive years
  • three years within the previous six years
• In order to receive benefits, individuals must need help with at least three daily living tasks as determined by Washington’s Department of Social and Health Services (DSHS).
• Benefits are capped at a lifetime maximum of $36,500, with future increases tied to the Consumer Price Index.

Employer Concerns

• Employers must begin deducting employee premiums on or after January 1, 2022.
• Payments and quarterly wage reports must be submitted to the Employment Security Department by the end of the month following the close of the calendar quarter. The draft reporting regulations are not specific about the information employers are to include in quarterly reports, aside from defining what is included under reportable wages. However, according to the LTC law, regulators are to use the premium collection and reporting procedures in the PFML law to the extent that is feasible.
• Employers who choose to offer LTC benefits will not be required to collect or remit premiums and can waive participation in the program.
• Employers should note that other states – including Michigan, Illinois, California, and Minnesota – are considering similar laws or exploring other strategies for making long-term care coverage more accessible.

These alerts are being sent from an active email inbox that we monitor throughout the day.  Feel free to contact us at this email address if you need additional information or clarification.  We are here to answer your questions and provide guidance.  Or, feel free to contact your Piper Jordan account team directly.  We are here to assist you.