Washington State has enacted a new payroll tax

Do you work for Amazon, Microsoft, Facebook, F5 Networks, or any of the other huge IT companies in Washington State???? Is your annual salary more than $300,000? If so, you should definitely check this out!

For the first time, Washington State has instituted a long-term care insurance (LTC) program funded by an employee levy. All remuneration received by W-2 workers in Washington state will be subject to a 0.58 percent payroll tax beginning on January 1, 2022. In other words, you’ll pay an extra $580 for every $100,000 in remuneration, with no limit on the amount you might earn.

The good news is that if you get long-term care insurance before the deadline, you may avoid this fee and program. Apart from the yearly savings, there are other advantages to purchasing long-term care insurance via a private company over a state-sponsored plan.

Long-Term Care Trust Act Questions and Answers:

What does it mean to provide long-term care? How does long-term care insurance work?

A person’s health and personal demands may change as they get older, necessitating more assistance with everyday tasks. Assisted living, skilled nursing, and independent living are all options for this care.

In order to pay for these treatments, long-term care insurance might be used. Couples and individuals who do not have the financial capacity to handle these expenses need this insurance coverage.

For what purpose is this scheme being introduced in Washington now?

The population of Washington, like other states, is aging. Every year, the number of people over the age of 65 who need some kind of assistance rises. Washington intends to alleviate some of this difficulty by implementing this program today.

Is there anything, in particular, I should know about this program?

Long-term care expenses may be covered up to $100 per day, with a lifetime cap of $36,500. A year’s worth of long-term care expenditures at $100 per day is covered by this policy.

Additionally, keep in mind:

  • Unless you live in Washington, you are out of luck.
  • Payroll contributions are solely used to cover the employee, not the spouse or dependents.

Who will have to pay this additional tax?

For all W-2 employees beginning on January 1, 2022, this new payroll tax will be in effect (unless you opt out in time). Employees will be responsible for this tax since it is withheld from their paychecks by their employers.

There is no tax for self-employed people like contractors, sole proprietors, or participants in a partnership or a joint venture. As with Washington state’s paid family and medical leave, they may opt-in to participate.

When you say that this tax applies to every employee’s remuneration, what do you mean?

With no limit on income, this includes your salary, bonuses, and company stock (such as RSUs).

An Amazon employee earning $450,000 a year ($160,000 salary + $290,000 vesting RSUs) pays an extra $2,610 in payroll taxes.

My question is, how can I get out of the payroll tax?

If you have long-term care insurance coverage in effect prior to November 1, you may permanently opt-out. The Employment Security Department in Washington State will need an attestation that you acquired this coverage between October 1, 2021, and December 31, 2022.

As a reminder, those who have a long-term care insurance policy or annuity might also be excused from this programme.

Who pays for what if I get my own LTC insurance?

When compared to the state’s programme, the advantages given by individual insurance may be much bigger and more comprehensive. An important distinction is that most individual long-term care insurance plans cover you for a period of time ranging from two to five years. If you’re married, you may be able to save money on your premiums by purchasing combined insurance that covers both of you.

Should I get my own long-term care insurance?

For any of the following reasons, we suggest looking into other options:

  • Anyone with an annual salary of $300,000 or more is considered a high-income earner. It is possible to locate a better LTC insurance option for less than $1,740 a year ($300,000 * 0.58 percent payroll tax). In particular, families with two incomes of $400,000 or more may save money on their insurance premiums by purchasing a combined coverage and combining their policies.
  • You may only collect these benefits if you undergo medical treatment in Washington State, so don’t make retirement plans that include leaving the state. Those who intend to relocate away would not get any benefits and would gain considerably higher value by purchasing their own insurance that may be utilised for long-term care expenditures in whatever state they chose to retire in. –
  • If you’re thinking of retiring in the next few years, you may do so if you’ve paid into the system for at least five years straight, or if you’ve paid into it for at least 10 years straight. As a result, you will not be eligible for any benefits if you fail to achieve these conditions prior to your departure from the company.

Inquiries about Washington’s Long-Term Care Trust Act should be sent to our office.

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