Washington delays long-term care payroll tax

On January 27, 2022, Washington passed House Bill 1732 delaying its long-term care program — known as the WA Cares Fund — by 18 months.¹ Employers must now start collecting the required payroll tax to fund the program on July 1, 2023.

Employers that began collecting the payroll tax on the original start date (January 1, 2022) must return those funds to employees within 120 days of the date the taxes were withheld. Benefits under the WA Cares Fund will now be available starting July 1, 2026.

This legislation was expected, as Washington Governor Jay Inslee had previously announced efforts to delay collecting the payroll tax and amend the law to address certain concerns.²

The new legislation also allows Individuals born before January 1, 1968, who have not paid into the WA Cares Fund for the requisite number of years to receive partial benefits so long as they have paid the required payroll tax for at least one year.

Governor Inslee also signed HB 1733, which makes the following individuals eligible to voluntarily opt out of the WA Cares Fund and avoid paying the payroll tax:

1. Veterans with a service-connected disability of 70% or higher
2. Spouses or domestic partners of active duty service members
3. Persons residing outside of Washington while working in Washington
4. Persons working in the U.S. under a temporary, nonimmigrant work visa

Individuals may begin submitting applications to the Washington State Employment Security Department (ESD) to opt out for any of these four reasons beginning January 1, 2023. An exemption may be discontinued if an employee no longer meets the eligibility requirements; the employee would then have 90 days to notify the ESD and the employer that he or she is no longer exempt, at which point the employer would begin collecting the required payroll tax from the employee.

Remaining unchanged is the option to opt out for employees who had qualifying long-term care insurance in effect before November 1, 2021, if they submit an opt-out application on or before December 31, 2022, and receive an approval letter from the ESD.

Going forward

• Employers who started collecting the WA Cares Fund payroll tax as of January 1, 2022, should work with their payroll providers to immediately stop any additional payroll deductions from being taken (at least until the program’s new July 1, 2023 effective date) and return to employees any payroll taxes that were already withheld (within the 120-day time limit).
• Employers should retain any opt-out letters they received from employees who applied and were approved for an opt-out exemption due to having qualifying long-term care insurance in place prior to November 1, 2021. As employees have until December 31, 2022, to submit an application to the state, employers may continue to receive opt-out letters from employees who have their applications approved.
• While not required, employers may wish to communicate to employees about the changes to the WA Cares Fund and inform them that any payroll taxes that were withheld are being returned.
• Employers should continue to monitor the law for additional updates and guidance. The WA Cares Fund has indicated that information about the changes will be provided on its website.

Additional changes to the law before the WA Cares Fund’s new July 1, 2023 implementation date are still possible. Amid concerns about the program’s solvency, a bill to repeal the law in its entirety has been proposed, and a class action lawsuit has also been filed.

Footnotes

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

² For more information on the delay, see “Washington announces delay in collecting long-term care payroll tax,” Insider, December 2021.