Washington announces delay in collecting long-term care payroll tax

Update as of January 3, 2022: On December 23, 2021, Washington Governor Jay Inslee issued a statement clarifying that the law requiring the WA Cares Fund payroll tax that took effect January 1, 2022, remains in effect until the legislature changes it (the next legislative session starts January 10, 2022). The governor further announced that the state of Washington will begin collecting the payroll tax from its own employees’ paychecks on January 1. Given the uncertainty surrounding this law, employers with employees in Washington should discuss with legal counsel whether to start withholding the payroll tax starting January 1, 2022.

On December 17, 2021, Washington Governor Jay Inslee, Senate Majority Leader Andy Billig and House Speaker Laurie Jinkins announced that the state is delaying the January 1, 2022 effective date for employers to start withholding the WA Cares Fund payroll tax. According to the announcement, the legislature intends to pass legislation that formally extends the law’s implementation date through the 2023 legislative session.

The WA Cares Fund, enacted in 2019, established the country’s first state-run long-term care insurance program. Funding for the program is from an employee-paid payroll tax that employers would be responsible for withholding from employees’ wages.¹

Governor Inslee announced that the Washington Employment Security Department will not be collecting premiums until the legislature addresses some issues with the law and, during that time, employers will not be subject to penalties and interest for not withholding the payroll tax. The announcement explicitly encourages employers not to start collecting the payroll tax during the delayed implementation period. Washington employers will want to work with their payroll providers to ensure that they don’t start withholding the payroll tax on January 1, 2022.

There is currently a legal challenge against the law on the grounds that it is preempted by ERISA, and the Washington legislature is expected to make a number of changes to the law during the 2022 legislative session.

Footnote

¹ For more information on the WA Cares Fund, see “Washington’s new long-term care payroll tax,” Insider, June 2021.