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.
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?
Starting January 1, 2022, WA State will impose a 0.58% payroll tax on all W2 income. 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. Income from K1 distributions is also not currently included in the tax. However, both of these exceptions 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 opt out? Alterra can help!
Employees have a one-time opportunity to permanently opt out of taxes and benefits in two steps:
- Place long term care coverage in force before November 1, 2021 If you don’t have coverage, we can help you evaluate, select, and place the best option in place.
- File an exemption with the WA State Employment Security Department between October 1, 2021-December 31, 2022
Washington law generally includes personal and group long-term care policies, as well as qualifying long term care riders attached to life insurance policies. Chronic illness and accelerated death benefit riders, common in many life insurance policies, will not count for the exemption.
The law doesn’t specify a minimum amount of required coverage, though you should at least match the state’s plan – $100/day for 365 days for a total long-term care benefit of $36,500.
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.
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.