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Gov. Inslee delays start of Washington’s new long-term care tax

The start of a new mandatory payroll tax to fund Washington’s long-term care program has been delayed.

OLYMPIA, Wash. — Gov. Jay Inslee announced Friday a decision to delay the start of a mandatory payroll tax to fund Washington state’s new long-term care program.

The Washington Cares Fund was originally set to begin collecting taxes in January 2022 to help pay for long-term care expenses as the state's population gets older.

Inslee said he has been having ongoing discussions about the long-term care bill and that “legislators have identified some areas that need adjustments.” And Inslee agreed.

"There is an appetite to refine and improve this bill," said Inslee, "And I feel pretty good about having some resolution about that."

Inslee is ordering the state Employment Security Department not to collect premiums from employers before they come due in April.

“My actions mean that the state will not collect those funds until the Legislature sorts through these issues,” Inslee said in a statement. “While legislation is under consideration to pause the withholding of LTC fees, employers will not be subject to penalties and interest for not withholding fees from employees' wages during this transition."

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State Sen. Andy Billig (D-Spokane) and Speaker Laurie Jinkins (D-Tacoma) said the legislature intends to make the program better during the upcoming session and that the pause will give the Long Term Care Commission time to “study and make recommendations about residents who move out of Washington to retire and assure that those who have opted out of the program maintain their private insurance policies.” 

“Pausing the program so that it can better serve disabled veterans, military spouses, non-residents, and near retirees will improve the program," Billig and Jinkins said in a statement.

Washington passed the first-of-its-kind long-term care tax in 2019. When it starts, Washington workers will pay 0.58% earned into the Washington Cares Fund, which equals 58 cents per $100 earned. Someone who earns $75,000 a year will pay about $435 a year into their account, according to the state Employment Security Department.

The fund ensures taxpayers who have contributed for 10 years receive $36,500 over their lifetime to help pay for long-term care needs, like in-home care, nursing home care, hearing aids, trained support for caregivers, home-delivered meals, memory care, necessary home renovations and many other services, according to the WA Cares Fund website.

However, the tax has sparked opposition from some groups who argue the act violates federal law or that taxpayers should have the option to opt out.

Republican Rep. Peter Abbarno is glad deductions won't start Jan. 1. He has been fighting to get the law thrown out. Abbarno thinks the state should do more to incentivize long-term savings instead of mandating it.

”It’s an admission this program has a lot of problems," said Abbarno. "Again it has a lot of problems from the regressive payroll tax collection to the investment strategy all the way to the restrictive benefits.”

Critics have called for the law to be made optional or at least more flexible. Under the law, if someone moves out of state, they cannot take their funds with them, something critics say unfairly impacts military families.

And those within 10 years of retirement won't be able to access any of the money they've saved.

In November, opponents of the payroll tax filed a class-action lawsuit in federal court seeking to stop the January start of the payroll premium for most employees in the state. The suit was filed on behalf of three businesses in the state and six individuals. None of the individuals purchased a private, long-term care insurance plan before Nov. 1, the deadline to qualify for an exemption. 

Lawmakers were hoping to implement changes to the law 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. Washington state Senate Democratic leadership sent Inslee a letter on Dec. 1 asking him to delay the implementation of the long-term care tax until January 2023 to allow lawmakers to make changes before it takes effect.

Lawmakers also expressed interest in giving constituents more time to opt out of the tax, according to the letter sent to Inslee's office. The deadline to opt-out of the fund passed on Nov. 1, 2021, by which time residents needed to submit proof of a private long-term-care insurance policy to the employment security department.

The fund will apply to anyone who works for a business, with some exceptions. The fund does not apply to federal employees, tribes can choose to have their employees contribute to funds and the self-employed will not be automatically enrolled but can choose to have funds withdrawn for a long-term care account.