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What’s up with that WA Long-term Care tax?

| June 06, 2022

This time last year, an incredible amount of airtime was being given to the novel Long-term Care tax that was set to take effect here in Washington State at the start of 2022. Many of you (and me) were scrambling to understand the new program and, in many cases, were scrambling to put in place a private policy that would allow us to be exempted from this new payroll tax. We know that many of you were successful in getting this exemption, while many were not (for a variety of reasons)…but then you realized this was all a grand scramble for seemingly nothing. Why? Because the Legislature took notice of the screams of frustration from all over the state (and just beyond our borders) and enacted legislation in early 2022 that delayed the implementation of this program to mid-2023. In conjunction with this, they also passed (and the governor signed) a number of key revisions to the program and gave themselves time to consider further revisions in the months to come. 

So, what are we to do now? Curious about this, I recently reached out to the Employment Security Department (ESD) (the group responsible for managing this program) to get some clarity on the recent changes and what to expect moving forward. Since I knew you were all sitting on the edge of your seats wondering the same thing, I thought I would pass along what I learned – so that you can start preparing now in an effort to:

  1. Do what’s best for you and your family.
  2. Avoid the mad scramble that we witnessed late last year.

As a reminder, this new program involved a tax of 0.58% on W2 wages earned in Washington State (uncapped) and a lifetime benefit of $36,500 to be used to cover long-term care expenses for qualified recipients. For more details (because there are so many more), you can revisit our blog post on this from last year or visit the State’s website.

Let’s now look at the recent changes, as well as what you can do if you already have an exemption in hand.


Previously, the only ways to gain an exemption from this tax were to:

  1. Have a qualifying private-purchased long-term care (LTC) policy in place by November 1, 2021 (and then apply for an exemption letter from the ESD by December 31, 2022).
  2. Be self-employed with no W2 wages (these workers could opt-in at their discretion, but were automatically exempted by law).

(Being retired or simply not in the workforce was another way, as it’s hard to tax earnings that don’t exist).

The recently enacted changes significantly broadened the pool of workers eligible for an exemption. This pool now includes:

  1. Workers who live out of state (looking at you if you live in Portland but work in Vancouver, or you cross over from Moscow to Pullman, etc.)
  2. Military spouses
  3. Workers on non-immigrant visas
  4. Veterans with a service-connected disability rating of 70% or more

These groups were added to the list based on one simple commonality – they are unlikely to ever utilize the benefit they were otherwise helping fund. Why’s this? In cases 1-3, it’s because they are unlikely to reside in WA state in retirement, and the program requires you to be a resident at the time benefits are received (more on this below). In case 4, it’s because these esteemed veterans will receive sufficient support through VA benefits to cover LTC care needs, rendering the WA benefit useless.

If you are in one of these groups, it is important to note that you do not have to opt-out of the WA program. You can choose to remain in at your discretion. It’s also important to note that your exemption is not automatic, nor it is permanent. You will have to apply for it, and your exemption will lapse if your circumstances change (e.g. you move into WA state, your immigration status changes, etc.). One exception here is that disabled veterans (group 4) will receive a permanent exemption.


The application window for these new exemptions will open on January 1, 2023. Sit tight until then (they are still writing the rules)! Importantly, they are NOT re-opening the window to obtain a private policy for the purpose of gaining an exemption. The prior deadline of Nov 1, 2021 remains in effect. However, you do still have time to apply for an exemption if you have not done so already based on a qualifying policy purchased by that date. That exemption eligibility window runs through December 31, 2022 (and is then gone forever).


Under the original program design, many workers who were nearing retirement at the outset of the program would pay into it for years, only to find themselves highly unlikely to qualify for benefits (due to service year requirements, details of which can be found in the blog post I linked to above). Under the program revisions passed in 2022, anyone born before January 1968 (looking at you Jeff!) can earn 10% of the full benefit for each year they work at least 500 hours.


Previously, you would have started contributing to this program via the payroll tax on January 1, 2022. Instead, premiums (read: taxes) will commence on July 1, 2023 – an 18-month delay. Note that if your employer collected any premiums prior to the legislative changes that pushed back this collection start date, your employer is responsible for refunding those taxes as soon as possible.


The first date on which qualified participants can start receiving benefits is now July 1, 2026 – so be sure to stay ambulatory until then!


It’s still good! You just happened to get it long before you really need it. Any exemptions already granted remain in full effect and are permanent.


As mentioned above, they are NOT reopening the window to obtain a qualifying LTC policy. Of course, you are still welcome to go purchase such a policy. It won’t help you gain an exemption, but it still may be a prudent financial consideration for you and your family (hint: relying solely on $36,500 from this program will not be sufficient – so either self-insuring or obtaining a private policy needs to be considered as part of your financial plan).

That said, if you do have a policy that you put into force by Nov 1, 2022 but have not yet applied for the exemption, you still can. You have until the end of this year (Dec 31, 2022) to get this done.

Lastly, they have made no mention of ever opening up an exemption window again in the future (except for the four new categories mentioned earlier, as this will presumably be a rolling exemption window), so new workers entering the workforce will have no option but to participate in this program.


This was a major loophole in the original program design, and one I candidly expected them to address (i.e., eliminate), as it flew in the face of the stated goal of the program. Once you had your exemption letter based on your privately purchased policy, you could cancel the policy without any negative repercussions as to your long-term exempt status (as all you needed to show your current or future employer is the exemption letter…no proof of the policy being in good standing was required). Rather than closing the loophole, they instead added language to the website that explicitly highlighted this loophole and stated that you are welcome to cancel. Hat tip, I guess, for their honesty and candor.

Note that if you have your exemption letter, you will not have to re-apply for an exemption due to the delay in the program, nor are they threatening to still close this loophole. As a result, you can, according to the WA Cares Fund website, cancel your policy and be confident that this won’t come back to bite you (from a LTC tax standpoint, that is…it may if you later need the benefit that policy would have provided). Of course, you may find you like the peace of mind that your newly acquired policy provides and thus decide to keep it. That’s perfectly fine, and it’s a decision that you have to make based on your own personal needs.


In just the 13 months since I last wrote a blog post about this, the purchasing power of the $36,500 has eroded tremendously. I posed the question to the ESD about this and whether the starting benefit amount will remain $36,500 or if the inflation-adjustment promised for later years will kick in now. They responded with the following: “There has been no statement at this point in time about how the $36,500 benefit amount will be adjusted for inflation, although the plan is to adjust it annually for inflation.” Wait and see.


If your head is spinning after reading all of this, just give us a call. We’ll be happy to talk with you about how to best approach this with your own circumstances in mind.