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The LTC Act

Washington state has passed the nation's first public-operated, long-term care insurance program—the Long Term Care (LTC) Act—which is paid for by employees through employer withholding as a payroll tax. 

The LTC Act imposes a mandatory payroll tax for all employees on all compensation—including stock-based compensation—without a cap, at a rate of .0058 of the employee's wages. While the payroll tax is effective as of January 1, 2022, no benefits are payable until 2025. The benefits payable are a maximum rate of $100 per day to a lifetime maximum of $36,500.

Of significance, and unlike other state insurance programs, there is no cap on wages. All wages and remuneration, including stock-based compensation, bonuses, paid time off, and severance pay, are subject to the tax.

The payroll tax is deposited in a trust, which currently can only be invested in U.S. Treasury investments that will not yield the projected 5 percent rate of return needed to support the benefits. As a result, the payroll tax should be at a rate of .0066 rather than .0058, as the funding at the current rate yields a projected net present value funding deficit of $15 billion.

Benefits are limited to Washington residents who have paid premiums under the Program for either (1) a total of 10 years without interruption of five or more consecutive years; or (2) three years within the last six years from the date the application for benefits is made. In addition, to qualify, an employee must have worked at least 500 hours during each of the 10 years or each of three years, as applicable.

From a practical standpoint, this means that employees who plan to retire in the next 10 years will be required to pay premiums but may never qualify for the benefits. It also means that retirees who move out of state will not qualify for the benefits.

There is a limited individual exemption for employees who have long-term care insurance as of July of 2021 and who apply for an exemption during a window period of October 1, 2021, through December 31, 2022.

Once that window closes, no further exemptions will be granted.

An employee may opt-out of the Program and all associated taxes and benefits if (1) the employee is 18 years old or older on the date he or she applies for the exemption, and (2) the employee attests that he or she has other long-term care insurance as defined in RCW 48.83.020.

To opt-out, a qualifying employee must provide identification to verify his or her age and must apply for exemption with ESD (using a format that will be approved by ESD) between October 1, 2021, and December 31, 2022. If approved, an employee's exemption will be effective for the quarter immediately following approval. Once an employee opts out, the employee cannot opt back into the Program, i.e., the opt-out is permanent.

There is nothing in the Program that prevents employees from dropping their other coverage following approval, but the employee will never become eligible for benefits under the Program.

Here at Triad Financial Strategies, we are actively working with our clients to help them understand their options but time is of the essence based on the current timeline that the state has given us.

If you are interested in learning more, please reach out to your Triad wealth advisor to talk about the options you may have.

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