Washington state previously adopted the Long-Term Services and Supports Trust Program. Under the Program, Washington residents who meet certain eligibility requirements may apply for long-term care benefits from the state. Program benefits are funded by employee contributions, not by employers. However, employers must withhold those employee contributions from employee wages (the LTC Payroll Tax). Employees may obtain an exemption from the LTC Payroll Tax, but only if they purchase qualifying long-term care insurance before November 1, 2021. Employers must begin withholding the LTC Payroll Tax on January 1, 2022. This alert discusses important elements of the Program and considerations for employers.
LTC Payroll Tax Withholding Basics
General Rule. Beginning January 1, 2022, employers must withhold the LTC Payroll Tax from the wages of employees whose work is performed entirely in Washington or whose work is "localized" in Washington. (The "localized" test should be familiar to employers. It is the test that is used to determine where an employer should pay state unemployment insurance for an employee.)
Exemption. Employers must not withhold the LTC Payroll Tax from any employee who provides proof that the employee obtained an exemption. More information on exemptions is provided below.
Exception. Employees covered by a collective bargaining agreement in effect on October 19, 2017 are not subject to the LTC Payroll Tax until the agreement is reopened or renegotiated.
Tax Rate. The LTC Payroll Tax is .58% of the employee's wages each pay period. Employers must remit the LTC Payroll Taxes to the state quarterly.
How Does Someone Obtain an Exemption from the Payroll Tax?
To be eligible for an exemption, an individual must be at least eighteen years old and must purchase qualifying long-term care insurance before November 1, 2021. The individual must then apply for an exemption by completing an application and submitting it to the Washington Employment Security Department between October 1, 2021 and December 31, 2022. If the individual's application is approved, the exemption will take effect on the first day of the quarter following the approval.
It is the employee's obligation to provide proof of the exemption to his or her employer. Once the employee has done so, the employer must maintain a record of the employee's exemption and must stop withholding the LTC Payroll Tax from the employee's wages.
Important Note. An individual who receives an exemption is permanently ineligible for benefits under the LTC Program.
What Type of Long-Term Care Insurance Qualifies Someone for an Exemption?
Under Washington law, qualifying long-term care insurance is an insurance policy, contract, or rider that provides coverage for at least twelve consecutive months to an insured person if they experience a debilitating prolonged illness or disability. Long-term care insurance may be included as a rider on some life insurance and annuity policies, but not all riders will qualify.
Important Note. Employer-sponsored long-term care coverage will generally be considered an ERISA plan.
How Should Employers Move Forward?
- We recommend that employers who offer qualifying long-term care coverage notify eligible employees of that fact. This notice is not required by law, but it will be helpful to employees wishing to apply for an exemption.
- Employers should be prepared, as of January 1, 2022, to withhold the LTC Payroll Tax for any employees who do not obtain an exemption.
- Employers should implement a process to maintain copies and track employee exemptions.
Questions? If you have questions or concerns regarding this client alert, please contact the authors, any member of Venable's Employee Benefits and Executive Compensation Group, or your regular Venable lawyer.