A new payroll tax is on its way for January 2022. Here’s what you need to know.
What: A 0.58% payroll tax on all compensation for W-2 employees begins January 1, 2022.
Who Pays: Washington residents who are W-2 employees will be subject to the tax which is paid through mandatory employer paycheck withholdings. Self-employed individuals may choose to opt in, by 2025 or within three years of becoming self-employed
What is Taxed: All employee compensation. This includes salary, bonus, and company stock compensation such as RSUs. There is no cap on wages.
Washington residents can expect to pay an additional $580/year for each $100,000 of total income.
The Benefits: Individuals can receive up to $100 per day to cover long-term care costs. There is a maximum lifetime benefit amount, set at $36,500. Note, benefits from the new program are not payable until January 2025,
The Limitations: Benefits are only available within Washington State and they only cover the employee who contributes via payroll – not spouses or other family members. Individuals need to have paid premiums for a total of 10 years without a break of 5 or more years, or 3 years within the last 6 years from the application for benefits.
Opting out: As written, the new law provides one opportunity to opt out. To do so, it is necessary to have a long-term care insurance policy in place by November 1, 2021. There are a few reasons one might choose to opt out. For example, you are:
A high-income earner who could purchase a more robust policy for less premium than the payroll tax.
Planning to retire before benefits are available.
Planning on retiring outside the state of Washington.
Self-employed but considering a return to W-2 status.
Important Dates: If you choose to opt out, and your LTC policy is in place by November 1, 2021, waiver applications should be completed and filed between October 1, 2021 and December 1, 2022. However, note that many long-term care insurance specialists are requesting that applications be submitted by June due to an expected backlog.
Next Steps: Please contact us if you have questions about how Washington’s Long-Term Care Trust Act might impact your financial situation.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Heritage Road Advisors, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Heritage Road Advisors, Inc. does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Heritage Road Advisors, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Heritage Road Advisors, Inc. unless a client service agreement is in place.
