Washington State’s LTC Trust Act is intended to offer long-term care coverage to state residents funded by a mandatory payroll tax. Here’s how it works and how you can opt out. For more on long term care insurance, read Long Term Care Insurance 101 and Hybrid Long Term Care Insurance – An Upgrade on Traditional Benefits.
IMPORTANT NOTE: Significant updates to the exemption rules were made in a 2022 legislative session, which took effect on January 1, 2023, as we detail in the exemptions section below.
What does the LTC Trust Act provide?
It offers short term benefits with a $36,500 lifetime maximum to offset expenses for things like nursing and assisted living facilities, professional caregiving and caregiver support, home health care, and meal delivery.
How much is the mandatory payroll tax and who pays it?
After changes to the program through early 2023, employers will begin collecting a 0.58% payroll tax on all W2 income starting on July 1, 2023. This starting rate is expected by many to increase in the future.
Self-employed individuals can opt in but are not currently required to participate, though this could change in the future if the plan ends up underfunded.
Who is covered under the plan?
To qualify, you must be a current resident of Washington State and meet the following criteria:
- Employees who pay for 10 years without a 5-year consecutive break are permanently vested.
- Employees who pay for 3 of the last 6 years are vested but could un-vest status once they no longer meet the “3 of the last 6” rule if they haven’t paid for 10 years.
- Require assistance with a minimum of 3 Activities of Daily Living (ADL) – medication management, personal hygiene, eating, toileting, transferring, body care, bathing, ambulation/mobility, dressing, cognitive impairment.
What if I move out of Washington?
You must stay a resident of Washington State to qualify for benefits. If you move out of state for five years or more, you forfeit all benefits and taxes paid.
How do I file an exemption to opt out following the 2023 updates?
In the initial version of the law, those who had private long-term care insurance on or before Nov. 1, 2021 were able to apply for an exemption from the WA Cares Fund from Oct. 1, 2021, until Dec. 31, 2022. This opt-out provision is no longer available. As of January 1, 2023, you may only apply for an exemption if you:
- Live outside of Washington.
- Are the spouse or registered domestic partner of an active-duty service member of the United States armed forces.
- Have a non-immigrant work visa.
- Are a veteran with a 70% service-connected disability rating or higher (this is a permanent exemption).
See the WA Cares Fund exemption page for further details, including how to apply for the exemption.
If you already obtained an exemption before 2023, your exemption is still valid!
The WA Cares Fund exemptions FAQ page says your exemption obtained before 2023 is still valid and exempts you from taxes and benefits under the plan. You will need to provide your exemption letter to your employer as proof so they can exclude you from the tax withholding.
Can I cancel my private LTC insurance since the program was delayed?
The WA Cares Fund exemptions FAQ page says that it’s up to you to decide to keep or cancel a private long-term care policy. As long as you obtained an approved exemption, your exempt status will not be changed if you cancel the policy. For those who need long-term care coverage, we’d recommend you talk with your advising team first.
WA State’s constitution doesn’t allow income taxes, will this survive legal challenge?
Washington State’s constitution does not currently allow for income taxes to be assessed by the state. Legislators have called this a “premium assessment” and not a tax to circumvent the prohibition, however because it’s calculated as a percentage of income, it’s unclear if this will stand in court.
Mallory Hall
CFP®, CPWA®
Financial Advisor
About the Author
Mallory brings more than a decade of experience in boutique wealth management and institutional finance to Alterra. A Pacific Northwest native, Mallory completed her degree in Finance at Seattle University and later earned Certified Financial Planner™ and Certified Private Wealth Advisor® designations. She credits that education to a wonderfully supportive extended family. As she tells it, her family’s unwaveringly support inspired her passion to pass this education on to others.
Mallory looks at her financial education as a life-changing gift that she shares with enthusiasm. She thinks math is fun, and markets are interesting, but the work of a financial advisor is about doing good for others. Mallory has a natural knack for the analytics, but she is motivated by how this skillset can be applied directly to improve the everyday lives of her clients. Because she stresses the educational role of a financial advisor, Mallory’s ultimate goal is to be a “multi-generational advisor” guiding a family’s assets and goals as they change from one generation to the next.
In her spare time Mallory loves exploring the outdoors with her family. She’s also a passionate supporter of her husband’s business where they craft custom frames for a wide range of fine art.
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.