Washington State Long-Term Care Trust Act and What You Need To Know

By Shane Larson, CFP®

In 2019, the Washington State Legislature passed the WA State Long-term Care Trust Act (LTCTA) which will impose a new tax on Washington employees. Washington State is the first state in the nation to enact this type of law to mitigate the cost of long-term care and limit the burden on Medicaid.

I have to give credit to our state for addressing long-term care issues, but it’s a one-size fits all approach and there may be room for improvement down the road. Creating a long-term care strategy is part of the planning process at Mainspring, but for those who don’t work with an advisor, this new law is a great jumping off point for a wider audience to understand the nuances of long-term care.

Beginning January 1, 2022, the LTCTA will impose a 0.58 percent tax on all Washington employees’ W-2 income to fund a new long-term care benefit. Here’s a look at the numbers:

  • This lifetime benefit of $36,500, is payable at a maximum of $100 a day for 12 months which is unlikely to be sufficient for future care
  • There is no limit to the amount of income to which the 0.58 percent tax will be applied therefore there is a cost discrepancy for higher wage earners even though the $36,500 benefit remains the same
  • Employees must pay into the LTCTA for 10 years to qualify for the benefits
  • If you move out of Washington, eligibility is nullified

If for any reason you do not believe the LTCTA is the right solution for you, or if you own a private long-term care policy, you can opt out and forgo paying the new tax. However, Governor Inslee recently signed a piece of legislation that will only consider exemptions for those who purchased a qualifying long-term care plan before November 1, 2021. After this date, anyone who purchases a private long-term care policy will not be exempt from the tax.

If you reside in Washington State and will be impacted by this tax, please speak with your advisor to determine what long-term care strategy is best for you and next steps.

Any opinions are those of Shane Larson, CFP® and not necessarily those of Raymond James. Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company. Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.