The State of Washington recently passed a new law mandating public long-term care (LTC) benefits for Washington residents. The Washington State Long-Term Care Trust Act aims to reduce pressure on the state's Medicaid system and provide more robust benefits than the current Medicare system allows.
The government plans to pay for the new law by adding an additional 0.58% tax on all employee compensation, including salaries and wages, bonuses and stock compensation. To help you understand the tax implications of this program and how it may impact your financial planning, we've put together the following guide.
What Is the Washington State Long-Term Care Trust Act?
Washington passed a new tax on employees to fund a public-operated long-term care benefits program. The intent of this coverage is to help with in-home or assisted living expenses associated with being unable to take care of yourself without help.
Effective January 1, 2022, employees will be subject to a 0.58% payroll tax on all eligible compensation. This includes wages, salaries, sales commissions, bonuses, company stock incentive compensation and other forms of earned income. Unlike Social Security, the law does not have a cap on the amount of income that can be taxed.
The money will be collected and placed into the WA Cares Fund. All workers who are not exempt from the program will make contributions, though employers will not pay into the WA Cares Fund.
The state's tax is scheduled to be $0.58 per $100 of income. If, for example, you earn $50,000 per year, this amounts to $290 per year in new taxes.
Through the program you receive lifetime long-term care benefits up to $36,500. To receive coverage through the state, you'll need to file an application and undergo an eligibility determination, which includes an evaluation of whether you need assistance with at least three daily life activities, such as bathing, dressing, eating or taking medication. You must also meet the contribution requirements under the program.
What Types of Services and Support Does This State Program Provide?
The Washington State Long-Term Care Trust Act established the following services and support for program participants:
- Professional personal care in your home, an assisted living facility, an adult family home or a nursing home.
- Adaptive equipment like hearing devices and medication reminder devices.
- Home safety evaluations.
- Training and support for paid and unpaid family members who provide care.
- Home-delivered meals.
- Care transition coordination.
- Memory care.
- Environmental modifications like wheelchair ramps.
- A personal emergency response system.
- Respite for family caregivers.
- Dementia support.
- Education and consultation.
How Might This Affect How You Budget for Retirement?
For now, if you live outside the state of Washington, this law will have no direct impact on how you plan for retirement. However, if other states decide to pass similar legislation — and it is not uncommon for laws like this to be adopted in more states after the first — it may affect your retirement planning.
While this law means higher taxes for residents of Washington, it also provides them with guaranteed long-term care services. This law defaults you into a publicly provided long-term care program in exchange for paying the additional 0.58% tax on your earned income each year.
Long-term care can be one of the biggest financial costs people face during their lives. Because Medicare provides coverage only for limited long-term care involving skilled nursing or rehabilitation services, many people are uninsured for their long-term care needs.
For some, especially low-income seniors, the Washington State Long-Term Care Trust Act may provide peace of mind, as they will be able to get some of the care they need without the added stress of figuring out how to pay for it.
If you don't think this program is right for you, the state offers you the ability to opt out of it as long as you have a long-term care insurance policy in place before November 1, 2021.
If you live in Washington, you should consider the following questions before purchasing your own policy and choosing to opt out:
- Do you plan to live in the state when you retire? Benefits received through the state program are currently only accessible to Washington residents and only apply to long-term care services provided in Washington. If you meet the eligibility requirements but choose to move out of the state, you will not be able to use these long-term care benefits outside of Washington.
- When will you start needing long-term care coverage? Benefits under the state's program won't become available until January 1, 2025. If you need coverage prior to that date, you may wish to consider purchasing a private long-term care insurance policy to suit your needs.
- When do you plan to retire? This program's benefits will only be accessible to residents of Washington who have paid premiums either for a total of 10 years without an interruption lasting five or more consecutive years, or for three out of the six years immediately after the application for benefits is submitted. Furthermore, you must have worked at least 500 hours as an employee during each of those 10 or three years, respectively, to qualify.
- How much income do you earn? Because the new tax has no upper income limit, the 0.58% tax applies to an unlimited amount of your income. If you have a higher income, you might consider purchasing your own long-term care coverage before November 1, 2021.
Need Additional Help?
For more information, consider contacting a licensed insurance agent. An experienced and knowledgeable financial professional in the long-term care industry can provide you with the information you need to navigate this new law and get the most out of your retirement planning moving forward.
Bankers Life is not connected with the WA Cares Fund and is not endorsed by the State of Washington. See http://www.wacaresfund.wa.gov/ for information about the WA Cares Fund program.
Exemptions are for life, which means you would never have access to the WA Cares Fund benefit. Consult with a tax advisor or attorney before applying for any exemption or taking any action in connection with the WA Cares Fund. Bankers Life and its producers do not provide legal or tax advice.
Bankers Life is the marketing brand of Bankers Life and Casualty Company, Medicare Supplement insurance policies sold by Colonial Penn Life Insurance Company and select policies sold in New York by Bankers Conseco Life Insurance Company (BCLIC). BCLIC is authorized to sell insurance in New York.