There’s another new tax in the state of Washington. The state’s Supreme Court recently upheld a controversial capital gains tax, which has been re-challenged in court and could be on the state’s ballot in November for potential repeal. Now, a first-of-its-kind state payroll tax aims to assist eligible families with a significant challenge — long-term care costs — through a Washington Cares program.
Research has shown that long-term care expenses for those who cannot perform daily tasks independently exceed $100,000 a year for some. Data also reveal that 35% of beneficiaries of long-term care services are under age 65.
Are you eligible for a long-term care benefit provided by the state? Can you choose not to participate in the program if you're not interested? Will other states, like California, implement similar initiatives involving payroll tax deductions?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To address these questions, it is important to understand long-term care and the challenges associated with it.
What is long-term care?
Long-term care refers to various services provided to individuals with chronic illnesses or disabilities who require assistance in their daily activities.
- These services can be provided in different settings, such as nursing homes or assisted living facilities.
- More and more often, family caregivers provide in-home care, sometimes with the help of professional aides.
Long-term care presents multiple challenges, one of which is significant financial strain. Long-term care expenses can be extremely high, and standard health insurance and Medicare do not pay for long-term care. That can quickly exhaust savings and assets, putting families in difficult situations. The financial burden is worsened by a shortage of qualified and skilled caregivers, and ongoing care can have a significant emotional and psychological impact on both patients and caregivers.
State of Washington long-term care benefit
The Long-Term Services and Support Act was enacted in Washington three years ago to address these costs. The program, better known as WA Cares, provides qualifying Washington residents access to up to $36,500 beginning in 2026.
Notably, the WA Cares Fund is financially supported by a first-of-its-kind state payroll tax. The funds to help residents pay long-term care expenses come from payroll tax deductions of 0.58% (or 58 cents per $100) of residents' wages. Those payroll deductions started last year, July 1, 2023.
- Proponents have said more than 3 million Washingtonians could benefit from the program.
- According to A Place for Mom, a senior care network, the average cost of long-term care in Washington state is over $5,100 per month. Other estimates put the average cost of long-term care in the state at more than $6,000 a month.
Some critics of WA Cares argue that it is unpopular and poorly designed. Others say the program doesn’t provide sufficient benefits and that Washington state, one of nine states without a personal income tax, doesn't need another payroll tax.
Another concern is that while the withholding tax rate cannot exceed .58%, there is no income cap, meaning high earners will essentially pay more. For example, if you make $45,000 a year, the WA Cares tax would be about $261 a year. If you make $120,000 annually, the long-term care payroll tax amount would be about $696 a year.
Meanwhile, a conservative group, Let's Go Washington, is spearheading efforts to allow residents to opt out of the tax through a measure that could appear on the state’s November ballot. Currently, the WA Cares program offers a few "exemption pathways" for eligible residents to be excluded from the Fund tax. These include living outside of Washington, being a spouse or registered domestic partner of an active-duty service member of the U.S. armed forces, having a non-immigrant work visa, or being a veteran with a 70% or higher service-connected disability rating.
Long-term care insurance cost
Traditionally, some of the costs that WA Cares could cover could be covered by long-term care insurance. Long-term care insurance can be expensive and subject to significant limitations. How much you pay for premiums can vary significantly depending on several factors, including your age, gender, health, the amount of coverage you desire, the type of policy you choose, and where you live.
However, as Kiplinger senior retirement editor Elaine Silvestrini recently reported, “as many as 70% of older adults develop a need for long-term services and support” in their lifetime. While there are other ways to pay for long-term care, Jesse Slome, director of the American Association for Long-Term Care Insurance, told Silvestrini that people looking for policies to cover long-term care expenses have to plan, generally, be in good health and have financial resources to cover premiums.
Is long-term care insurance tax deductible? If you are eligible, you can deduct premiums for long-term care insurance on your federal income tax return. To be deductible, those premiums must exceed 7.5% of your adjusted gross income (AGI). How much you can deduct depends on your age.
Is California considering a long-term care tax?
Several states, including California, are considering long-term care payroll taxes. A state task force is studying the feasibility of establishing a program in the Golden State. Such a program could involve a payroll tax with estimated contribution rates starting at 0.60% of a resident's wages and ranging as high as 3% depending on benefit level. However, a proposed program would likely have an income cap.
Some other states that could implement long-term care payroll tax legislation include Minnesota, New York, and Pennsylvania.
Related
-
How the 2025 Child Tax Credit Rules Impact Single ParentsTax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
Retirees Should Watch These Four Key Tax Changes in 2025Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
Georgia Could Be Latest State to Eliminate Income TaxesState Tax Eliminating the Georgia state income tax: Last-minute summer trend or permanent policy?
-
Biggest Winners and Losers in Trump's New Tax PlanTax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
No Capital Gains Tax on Home Sales Coming Soon? What You Need to KnowTax Policy Capital gains taxes are back in the spotlight. This time, the chatter on Capitol Hill has to do with rising home prices.
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's FinancesTax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.
-
New Cap on Gambling Loss Deductions Begins Soon: What to Know NowTax Changes A gambling losses tax deduction cap in Trump’s “big beautiful bill” is causing an uproar. Here’s what you need to know.
