Most people in Washington don’t know it yet, but workers’ paychecks will decrease soon. A law passed in 2019 — and tweaked a bit this legislative session — means a new payroll tax will bite into people’s incomes at a rate of 58 cents per $100, starting in January.
Lawmakers are taking the money from workers to fund a socialized, one-size-fits-all, long-term-care entitlement program that a lot of workers don’t want or need — and that some people won’t get, even after paying into the program for years. That’s because the promised benefit is not portable. Move out of the state for your retirement years and end up needing long-term care? No state-promised benefit for you.
Some soon-to-be retirees also are out of luck. They’ll pay into the program, many during their highest-paid working years, but won’t receive the promised benefit because they haven’t met the required number of years to be considered vested. Both of these groups might want to opt out of the program.
They’ll need to check into options fast, as the time to do so is limited and requires workers to purchase private long-term-care insurance of their own. This is not a quick and easy task, and lawmakers just set a Nov. 1 purchase-by date to opt out. Read more about that here.
How big is the tax?
This payroll tax has no cap on income, so workers who earn $25,000 annually will pay $145 each year, people making $50,000 will contribute $290, a worker earning $100,000 will pay $580 a year and so on. Everyone who pays in for a required number of years is vested and eligible for the same lifetime benefit, regardless of the amount of money they’re forced to contribute and regardless of their individual needs.
That might be the worst part of this law: The maximum benefit is set at only $36,500, or just $100 a day for a year. That’s a laughably small amount to anyone who knows the high costs of long-term care and the average length of time people typically need it. (See Genworth’s Cost of Care Survey for more information about costs.) Even a modest level of care can cost more than twice that.
The program, now being called the WA Cares Fund, was created so workers would defray the long-term-care costs associated with Medicaid. Even low-income workers don’t win, however. They’ll not only watch their incomes go down, leaving them less equipped to save money or make plans for their retirement years, but since $36,500 in lifetime benefits is typically insufficient, they won’t have much to feel safe about.
Self-employed workers will not be subject to the tax yet, but they can opt in if they want, under time parameters laid out in this year’s legislation concerning the fund. A policy and rules manager for the state’s Employment Security Department (ESD) confirmed that business owners who are considered in a partnership, LLC, or who are sole proprietors or independent contractors, also are not forced to pay into the new state program. If they make W2 income, however, that income will be taxed.
To learn more about the program that workers will be funding starting in January, visit the state’s new website for the long-term-care fund. It will answer some of your questions. The site includes a contact form for individual questions and a sign-up for an employer newsletter.
Instead of using its bully pulpit to encourage Washingtonians to start planning for their long-term-care needs, the state is imposing this socialized system. Never mind that many Washingtonians plan to pay for long-term care with assets they have acquired during years of work. Never mind that some people have purchased long-term-care plans of their own or that private-market insurers can offer plans that work better for a worker, depending on his or her age, income, and future plans. Workers should call around for comparisons.
Don’t count on the payroll tax staying at 58 cents per $100, either. There is a pattern of long-term-care costs going up yearly, and we are expecting a silver tsunami. That’s another reason to check into opt-out options.
Workers in the dark
Maybe the fact that the WA Cares Fund isn’t a good deal for so many state workers explains why the state hasn’t been super vocal about the tax grab on the way.
Keeping people in the dark is not a proud legislative moment. And with the new, limited, opt-out window Democrats sought, many workers won’t even know about the payroll tax or their options until their wages decrease and they must adjust their budgets.
Struggling families across the state didn’t need another budgeting headache right now. The legislative majority in Olympia clearly thought otherwise.
Elizabeth Hovde is a research analyst for Washington Policy Center, a free-market think-tank in Washington state.