Washington state employees saw a recent deduction in their paychecks due to a new tax on wages. The new tax is meant to support the expenses of long-term care. This tax, known as the Washington Cares Payroll Tax, was established in 2019, but its implementation started in July 2024.
Here’s how the tax works: most workers in the state, unless exempt, are subject to a 0.58% tax on their wages, which is then directed to the WA Cares program. This program serves as a state fund that individuals can access throughout their lifetime to cover long-term care expenses, including necessities like food and mobility assistance.
To benefit from the program, workers must contribute for at least ten years, though some situations may allow for an accelerated benefit. The maximum lifetime benefit available is $36,500, with adjustments made for inflation. Currently, the benefit is only accessible to those who remain in the state and cannot be transferred to other family members.
The reason for creating this program is due to the continual growth of the senior population in Washington. It is expected to double by 2040. Many middle-class families have not saved enough for long-term care, leaving them vulnerable if they require these services later in life. High-income families may have more resources to cover long-term care expenses, and those on government assistance can receive additional support. However, middle-class families who haven’t previously sought benefits may need to rely on family assistance or deplete their savings to qualify for government aid.
Long-term care costs are significant, with the average price for medical in-home care and nursing home care reaching substantial figures. The WA Cares program’s benefit might be seen as inadequate when compared to these expenses, leading to some pushback, particularly from Senate GOP Leader John Braun. In the past, there was an option to opt out of the program. If workers had bought private long-term care insurance before November 1, 2021, they had until December 31, 2024, to apply for an exemption. That particular opt-out exemption is no longer available. Braun would like for anyone to be able to opt out of the program.
Approximately 508,000 Washingtonians have already opted out of the program, which raises concerns about the future viability of the fund. The tax money is collected and pooled into a trust fund, similar to Social Security. The fund is intended to provide future benefits. If more participants opt out, the fund’s capacity to invest and provide future benefits may be diminished, potentially leaving only those with no other alternatives in the pool likely to need the most assistance.
While the average monthly contribution for Washington workers to the WA Cares program is relatively affordable at $24.21 or $291 per year, long-term care insurance can be challenging to obtain. The number of companies offering such insurance coverage has decreased significantly in recent years.
The issue of how to fund long-term care is not unique to Washington state. Other states may face similar challenges in the future. The U.S. already has a substantial long-term care market, representing a significant portion of GDP. Medicaid, in particular, plays a vital role in covering long-term care expenses, but it is projected to face considerable growth in enrollments and expenditures in the coming years.
To sum up, the implementation of the Washington Cares Payroll Tax has sparked discussions and debates on how to address the increasing demand for long-term care funding in the state and potentially throughout the country.