Washington long-term care tax and program ‘pause’ remains in question


State officials believe the governor has no authority to stop tax withholding for WA Cares Fund

Gov. Jay Inslee issued a press release Friday informing Washington citizens he would be hitting the “pause” button on the state’s collection of payroll taxes for the new WA Cares Fund. The governor wanted the state legislature to address reforms to the Long Term Care (LTC) program that the payroll tax funds.

The “first in the nation” LTC program and tax have come under increasing fire this past year. Citizens were only given a one-time opportunity to find alternative LTC insurance – the month of October. The state agency handling these requests for a waiver had significant challenges handling the citizen requests. A citizens initiative was proposed for I-1436, making the program an “opt in” rather than the current law with the one time “opt out” provision.

Today, Republican leaders asked the governor to call a special session of the legislature to fix or repeal long-term care tax before tax collections begin. Senate Republican Leader John Braun (20th District) and House Republican Leader J.T. Wilcox (2nd District) issued this statement.

“The governor’s announcement last week that the ‘Washington Cares’ long-term care tax would be delayed led everyone to believe that the tax would not be collected from their paychecks come January. State employees received notice that only those who have already been granted an exemption to the program will not have the tax deducted. Otherwise, the tax will be collected as originally planned. How is this a delay? How has the governor helped matters? He hasn’t. The governor’s announcement changed nothing. The only thing it did was publicly acknowledge that the program is a mess.”

Gov. Jay Inslee is seeking to delay implementation of the long-term care income tax collection, hoping the legislature will fix many of the problems. Officials with state agencies say he doesn’t have the authority to stop the tax withholding that begins Jan. 1. Graphic by Andi Schwartz
Gov. Jay Inslee is seeking to delay implementation of the long-term care income tax collection, hoping the legislature will fix many of the problems. Officials with state agencies say he doesn’t have the authority to stop the tax withholding that begins Jan. 1. Graphic by Andi Schwartz

Last month, opponents of the payroll tax filed a class-action lawsuit in federal court to stop collection of the tax. Critics said the one-time opt-out window from the tax was too narrow. The website that was supposed to facilitate WA Cares crashed from overuse.

In making the announcement last week, Gov. Inslee said that “employers will not be subject to penalties and interest for not withholding fees from employees’ wages during this transition.” Sen. Andy Billig (Democrat, 3rd District) and Speaker Laurie Jinkins (Democrat, 27th District) noted, “While we cannot direct employers not to collect, we strongly encourage them to pause on collecting premiums from employees, giving us time to pass legislation extending implementation dates until next year.”

Yesterday, various government agencies appear to have received a letter from the state saying “the law” does not allow the governor to stop the collection of required payroll taxes. 

The Washington Research Council shared the following.

The mechanism for the delay is that under current law, collections are not due from employers until April (even though employers must deduct the tax from employee paychecks beginning in January). The state is essentially buying time to officially delay the tax via legislation during the regular legislative session. But because this was not done legislatively, it is a very gray area for employers. Should they not collect premiums, as encouraged by Gov. Inslee, Sen. Billig, and Speaker Jinkins? Or should they follow the letter of the law?”

Jason Mercier of the Washington Policy Center shared a communication that supposedly was sent by a state agency to a military department employee. In it the government agency states: “The only way to prevent legally required collections would be a change in law – which only the Legislature can do. In the event the law is changed, the State will comply, which could include reimbursing assessed premiums.”

The agency in question says it will work with the Office of Financial Management and the state Human Resources department to monitor the issue. “The underlying law hasn’t changed”. Therefore they apparently will collect the $0.58 per $100 of earnings from employees paychecks beginning January 1.

Last Friday, Gov. Jay Inslee announced he was suspending the withholding of payroll taxes for the WA Cares Fund until the legislature can fix its many problems. Reports now indicate he has no authority to change the law; only the legislature can. Graphic courtesy Office of Governor
Last Friday, Gov. Jay Inslee announced he was suspending the withholding of payroll taxes for the WA Cares Fund until the legislature can fix its many problems. Reports now indicate he has no authority to change the law; only the legislature can. Graphic courtesy Office of Governor

The Office of Financial Management, in its capacity as human resources for state employees, has posted this statement on its page on the long-term care program (see number 14):

The governor has instructed ESD not to accept quarterly payments from all employers to give the legislature time to work on modifications to the program. However, the law remains in place and the law still requires employers, public and private, to collect the premiums from employees’ wages starting Jan. 1. The governor does not have the power to change this legal requirement on his own – it will require legislative action to change the underlying law. Legislators have committed to doing that in January and they have encouraged employers to take them at their word and forgo collections based on that commitment. There will not be penalties or interest collected on employers who do not collect.

However, the state as an employer will follow the law until it is changed. The only way to prevent collections from being legally required in January would be to change the underlying law before then.

Braun and Wilcox said they need to go into a special session before the state begins collecting the tax and repeal this bill – even if it’s over the holidays, using virtual technology to meet on short notice. “The program is so unpopular that more than 400,000 Washingtonians applied for an exemption and thousands of others want out but couldn’t get a private policy before the deadline. Why? Because the way the law is written drove insurance carriers to pull out of Washington,” they said.

They point out that under the current law, it is legally questionable if anyone who has the money deducted from their paycheck can get it back – not even if they are granted an exemption. “People are angry,” they said. “The governor stands to make them even angrier if he fails to have the legislative branch address this before January 1.”

Democratic leaders have indicated they intend to pass a law formally delaying collection until after the 2023 legislative session. Sen. Mark Mullet, (Democrat, 5th District), had previously predicted the governor’s office would announce a suspension of the tax collection “just before Christmas.” He cautioned that the program’s problems could take a long time to fix.

Mullet said he had voted against the tax and called it not fully baked.

Republican leaders Sen. John Braun and Rep. JT Wilcox issued a joint statement calling for a special session of the legislature to address the significant problems with the WA Cares Act and the payroll tax associated with the law. The tax withholding begins Jan. 1 and the legislature isn’t scheduled to meet until Jan. 10. Graphic courtesy Senate Republican Caucus
Republican leaders Sen. John Braun and Rep. JT Wilcox issued a joint statement calling for a special session of the legislature to address the significant problems with the WA Cares Act and the payroll tax associated with the law. The tax withholding begins Jan. 1 and the legislature isn’t scheduled to meet until Jan. 10. Graphic courtesy Senate Republican Caucus

But beyond the on again/off again, “perhaps” delayed WA Cares program, everyone seems to agree it needs fixing.  Democrats in the legislature are offering a wide variety of “fixes” regarding how to address concerns over who pays into the tax, who gets to benefit from the tax, and what residents can do with the money once they are eligible.

Republicans have introduced HB 1594 to repeal the WA Cares Act. “The long-term care tax scheme is a rotten deal for Washington’s working people,” said Rep. Jim Walsh, (Republican, 19th District). “It’s insolvent. A measly benefit. Too many strings attached.”

In January, the Long-Term Services and Supports (LTSS) Trust Commission advising the Legislature will recommend a series of changes in response to some of these concerns. Last year it issued a report sharing significant concerns.

Among its recommendations are:

  • Allowing workers who retire before vesting to voluntarily continue paying premiums equal to what they paid while working, adjusted for inflation. They would become fully vested after making a total of 10 years of contributions.
  • Exempting non-residents who work in Washington state from the program and the tax. Those who move to Washington state would have to participate.
  • Requiring those who receive an exemption from the tax for holding a private long-term care insurance policy to recertify at least every three years that they still own the policy.

As for what to do about those who live, work, and pay premiums in Washington state but move elsewhere before claiming benefits, the LTSS Trust Commission had no recommendations. The commission noted that allowing such full portability would significantly raise premiums and that addressing the problem would take further study.

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George Miller
George Miller
11 months ago

This is a poorly designed approach. $100/day is half the cost of home care and assisted living and 1/3 the cost of nursing home care… so people are going to be paying $100-$200+ per day ($3000-$6000+/month) out-of-pocket.
That means many are going to go broke and end up on Medicaid anyway.
The only ways to protect assets from Medicaid: 1. irrevokable trust (set up 60mo. before applying for Medicaid or 2. a traditional long term care insurance policy that is Partnership approved
– from partnershipforlongtermcare
According to Medicare/Medicaid 70% of Americans will need some long term care. Insurance is always cheaper than paying out-of-pocket. Would you buy car or house insurance if you didn’t have to?
The reality is most of us will need care and since we’re not in EU where some countries take care of citizens cradle to grave while taking a large part of income for tax to pay for it. In America people don’t like taxes but the long term care risk is the same… so one way or another we pay.

David Kay
David Kay
11 months ago

Nearly every program in WA operates poorly now! Audit and repair existing before starting something new!

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