On December 17, Governor Inslee, State Speaker of the House Laurie Jinkins (D–Tacoma), and State Senate Majority Leader Andy Billig (D–Spokane) issued a statement announcing that the Governor would take executive action to pause the rollout of the upcoming long-term care payroll tax that was slated to be deducted from employee paychecks starting January
1, 2022. The move is meant to buy the Legislature time to make adjustments to the payroll tax and associated WA Cares Fund program before people begin paying the tax, in response to widespread questions and concerns.
Under the law that created the WA Cares Fund, employers are required to begin withholding the 0.58% payroll tax (which serves as the “premium” for the program) from employee paychecks starting January 1, 2022, and employers are then required
to remit them to the state Employment Security Department (ESD) at the beginning of the next calendar quarter, similar to how the payroll tax for the state’s Paid Family & Medical Leave program functions. The first such remittance of premiums
to the state would have been in April 2022. The Governor’s action directs ESD to not collect the remitted premiums from employers from the first quarter
of 2022. The Governor’s order also prevents ESD from penalizing any employers that choose to not withhold the required payroll taxes from employees during the first quarter of 2022.
It’s important to note that the Governor’s limited action does not necessarily erase an employer’s obligation under the law to withhold the 0.58% payroll tax from employee paychecks – it only eliminates the state’s enforcement
of any penalties for not withholding the tax during this initial transition period. On December 23, Governor Inslee issued another statement confirming that his executive actions do not change the underlying law requiring employers to withhold the payroll tax. He re-affirmed that his actions only affect the state’s own collection of the taxes remitted from employers at the end of
each calendar quarter and actual enforcement of the tax for the time being. For their part, Speaker Jinkins and Majority Leader Billig state, “While we cannot direct employers not to collect, we strongly encourage them to pause on collecting
premiums from employees” to give the Legislature time to properly adjust implementation dates and make needed fixes to the WA Cares Fund program. Cities should consult their own legal and tax advisors to help determine the right course of action
for them.
Around 450,000 people applied for a one-time, permanent opt out of the WA Cares Fund program earlier
this fall, as the rollout of the program came under scrutiny. Many employees who wanted to opt out were unable to when the private long-term care insurance market collapsed late this summer because of the high volume of people looking for plans that
would qualify them for the exemption. Under current law, those that wished to opt out needed alternative long-term care coverage by November 1, 2021, and have until October 1, 2022, to apply for an exemption. Other problems for the WA Cares Fund include a pending class action lawsuit and a proposed initiative to undo the program. Both are largely based on the idea that many Washington-based employees required to pay the payroll
tax will be unlikely to qualify for long-term care benefits under the program, though many of those issues are expected to be taken up by the Legislature in the 2022 session. At this time, AWC does not expect the Legislature to pass an extension to
the opt-out options and time frame; however, they may address situations where someone opts out and then lets their private coverage lapse. LTSS Trust Commission recently recommended that the Legislature focus on changes to in the following areas:
- People near retirement
- Residents of border states or Canada commuting to work in Washington
- People working in the U.S. under a temporary, non-immigrant visa
- Veterans with a 70%+ service-connected disability
- Spouses of active-duty military
- Constitutional amendment
- Exemption recertifications
- People who qualify and leave the state
AWC will continue to track these developments and report to cities on the latest legislative and executive action.