|Long-Term Care Payroll Tax will Begin in Jan – You must work fast to opt out|
|There is a new government program, and you will have taxes taken out of your paycheck from 2022 until you are no longer working. You have a limited time to opt out -by November 1st – so please look into your options.|
Background. In 2019, in a vote that was almost strictly along party lines, the WA State Legislature created a new program to help pay for long term care for people who may need it. It sounds like a great program, but there are some drawbacks.
1. The program will pay up to $36,500 in a lifetime for long term care needs. The drawback to that is that people will think that their long-term care needs will be met with that amount of money. If you have to be in a nursing home, that amount will pay for maybe 2-4 months, if you are lucky. This benefit will really only help if you only need a wheelchair ramp or perhaps someone to come in to help occasionally, but $36,500 doesn’t last long if you have any greater needs. I am just concerned that people will look at this long-term care program and think they are going to be just fine but will find that it doesn’t even come close to fulfilling their needs.
2. You must work and have contributed to the program for at least 3 of the last 6 years to qualify. That means if you plan to retire before 2025, you will not receive any benefits, but you will be required to pay into the program (it’s a payroll withdrawal).
3. If you work and pay into the program all your life but end up moving before you need to use your benefit, you lose the entire thing. Whereas, if you purchase a long-term care policy from an insurance company, you will be able to utilize it, even if you move.
4. The financial analysis of this legislation is that the pay-in amount will not cover what will be required to be paid out. They will either raise taxes (probable) or reduce benefits (not likely) in the future to deal with this program.
The program was opposed by Republicans when it was passed for many reasons, but it did pass, and we are stuck with it.
Fast-forward to today: You have a chance to opt out of this payroll deduction. If you want to get a private policy that is more portable and will pay for more services, you can go to a private insurance broker and buy a policy through them. Then you can opt out of the government program.
But here’s the catch. You do not have much time. You have to purchase the policy before November 1st and apply to Employment Security to get an opt-out letter that you can present to your employer. You cannot opt out once you are enrolled, so this is a one-time deal and you can never opt back in. At least you will have the chance – a person moving here after Nov of this year will have no choice but to participate.
To complicate matters more, ESD will not even have the opt-out procedure in place until October 1st, so you will only have a month to get the process going and get the opt-out letter (I wonder what their phone lines and website issues will be when thousands have to sign up in just a few days! Very poor planning, in my opinion). There is more about the program here: wacaresfund.wa.gov. It may be that this program is what you want to go with. But I wanted you to be aware that if you choose to purchase your own long-term care policy, you have only a very limited time to do so and still opt out of the state version. Otherwise, you will have this money taken out of your paycheck from now until forever. The bill that was passed this year that made the deadline was HB 1323. It originally only gave people until July 28th to purchase the long term care policy, but it was amended to give people a bit more time. If you are self-employed and want to participate, you must opt-in to the program before Jan 1, 2025 or within 3 years of becoming self-employed for the first time.
I’ve worked with people trying to deal with government programs enough to know that they are not the answer to everything. And unfortunately, changes can be made to any of them with just a vote from one set of legislators. Of course, there are problems sometimes with private insurance, as well. Nothing is perfect, but I wanted you to know the details about this program before the deadline, so you have some time to get another policy purchased, if you choose to opt out. Otherwise, about $.58 out of every $100 you make will be deducted from your pay as long as you work in WA Sate.
I will probably write about this issue again when I can get more information. As I wrote this email, I thought of about 3 or 4 other complications. When do employers have to have everyone signed up? Will people get their “opt-out letter” from ESD in time to be able to get it to their employer on time? How long will it take ESD to process all these opt-outs – they sometimes took months to process unemployment cases. Lots of questions that I don’t have answers for. I’ll try to find out more information and keep you posted.