Understanding The New Washington State Long Term Care Act
The state of Washington passed a new law mandating the establishment of public long-term care for the locals. While Medicaid does not cover nursing home or assisted living costs, the Long Term Care Act was created in an effort by the state government to provide long term care for at least seven out of ten people.
It is funded with 0.58% of wages paid by employees who are then taxed based on how much they earn every year. While this program may be appropriate for many people living in Washington as it provides access to affordable LTC coverage without going through private insurers which can often charge higher rates due to preexisting conditions, you should decide if the act would be advantageous for your situation before signing up!
What is the Tax?
Starting from January 1st, 2022, Washington residents will fund the program via a payroll tax. This new program applies to all state residents and is permanent. The current wage-based tax rate for this benefit starts at $0.58 per $100 of earnings – that means if you make $1,000 in one year then $5.80 would be deducted from your paycheck as payment towards it!
A different approach to taxing workers is taken and unlike other state programs, there isn’t a wage cap on what gets taxed. All wages and remuneration are subject to taxation by this particular program which makes it unique.
There are many uncertainties in the future of tax rates, and some people worry that they will need to rise. Certainty is also more difficult for self-employed individuals because it depends on what type of business entity you have. Financial analysis have shown a possible need for the rise of the tax rate to 0.66%. Tax rate uncertainty can be a good thing or bad depending on your outlook!
Benefits the Program Provides
Long-term care services are becoming more expensive by the day. In the state, the average monthly cost for assisted living/memory care is usually between $5,750 and $6,750 per month. Medicare does not cover any part towards these expenses which forces many to spend down their assets they worked a lifetime accumulating over time just to pay for basic needs such as food or shelter; all while being at risk if someone else were able to claim inheritance after you’ve passed on due because your estate was already depleted by taking out loans against it!
With the program, individuals can access up to $100 every day which translates to a maximum lifetime benefit of $36,500 to cover expenses connected to needing assistance with activities of daily living. While private insurance has a limit of two ADLs, the State Plan requires individuals to be unable to do 3 ADLs. It is also important to note that the benefits are only accessible to employees contributing through their payroll and not their spouses or dependents.
Washington has been proactive in this changing landscape. The aging population is a significant issue, with more and more people over the age of 65 needing support services every year. By implementing these programs now, Washington hopes to alleviate some of its problems for later on down the line when it might be too late as there will not be enough funding available or because there is no capacity at that time due to increased demand from an expanding elderly population.
Who is Eligible to Receive It
If you’re a Washington State employee, your long-term benefits are guaranteed. After meeting the hour and minimum year requirements set by the state, employees can enjoy health care coverage through employer contributions to an approved retirement plan or from personal savings while they work. Those that do not pay into this program for at least 10 years won’t be eligible for these state-run long term care programs upon their retirement date.
The tax code is not something that self-employed individuals need to worry about. However, if they are pulled in too many different directions as an independent contractor and require time off for themselves or their family members, then the opt-in program may be available to them.
If the employer is found to be non-compliant, they can either file an amended report and pay the past unpaid premiums or get the past due amounts deducted from their paychecks.
There are a few reasons why you might need to opt-out of the program. For instance, you might be a high-income earner taking home an annual employee’s compensation of $300,000 or more. The program might not make sense as they can find an alternative that is more affordable and still meet their needs, especially if they have two household incomes of at least $400,000 combined.
For most people, a $1,740 monthly cost for long-term care insurance will be too expensive. Still, though there are alternatives out there that can save them money while still receiving the benefits and coverage they need to be taken care of when their health fails them in retirement.
A lot of people have this idea that once they retire, and their workdays are over, all the care for them is done. This isn’t necessarily true- there’s a wide variety of reasons why you would need to seek long term care. And if you plan on moving outside Washington State after retirement then living in any state other than WA will restrict you from collecting your benefit payments.
However, it would make it more advantageous to purchase LTC insurance separately so that when/if the time comes where one needs aid with personal necessities or assistance as necessary can receive it without worry since coverage will transfer between states.
If you plan to retire in the near future and want to benefit, you must have paid into the system either (1) for 3 years within the past 6 years, or (2) for 10 years with not less than 5 years of consecutive payments. If you don’t meet these requirements at the time of retirement, then you will not receive any benefits.
Private long-term care insurance will be assessed in 2020. If you have this type of policy, you can opt-out if the following requirements are met by October 1st: You must attest that they had private long term care coverage before November 2021 and provide proof to your employer; between October 1st and December 2022 (the time window), employers can make exemptions for their employees at any point during the year as long as they apply with ESD beforehand.
Another reason you might need to opt-out might be if you are an employee new to the workforce which translates to paying the funds for a long period of time meaning that the tax paid is more than the benefit received. This could also make sense if you plan to retire before the benefits are available to you.
Why not opt into this program now? If you are a self-employed individual, then the law requires that by January 1st, 2025, or within 3 years of becoming self-employed for the first time – whichever is later – you must either apply for an exemption from it or enroll. Self-employed individuals may choose to opt-out and risk being subject to LTC tax if they return back into employment as a W2 employee but would be exempt from paying any premiums while working on their own business which might make things difficult come retirement age.
A great alternative that will help avoid this tax is buying a combo life/LTC product. You can buy such plans through John Hancock, Equitable, and Nationwide who have true LTC Riders on Life Insurance. Also, the smallest plan offered by these companies is $100,000.
The new payroll tax is not paid for by the employer and can only be taken off of your paycheck. This means that you are taxed on top of your other finances when it comes to managing LTCi premiums, which would otherwise only come from the insurance company if they were paying out claims as traditional policies do. Since these taxes could drastically cut into what little money a person has left over after working their job, there may be some people who don’t have any extra income with which to cover this additional expense- so buying an LTCi policy might seem pointless at first glance but in reality, those without coverage will end up draining themselves dry before long!
In the future, it’s possible that your long-term care payroll taxes could increase from the current 0.58%. You can protect yourself from these potential increases by purchasing a policy now before interest rates increase.
The Washington State Long Term Care Act is something employees should be aware of, especially if they are living in the state. This act affects how long-term care benefits will be taxed by the government, and it’s important to know what this means for you. It’ll help determine how much money you can save on your taxes throughout the year!