Seyfarth Synopsis: After announcing a moratorium on the State’s collection of the Washington Cares Fund long term care (“LTC”) payroll tax from employers on December 17, 2021, Governor Inslee signed into law House Bills 1732 and 1733 on Thursday. The bills formally delay the program until July 1, 2023, and implement several changes that are intended to address criticisms levelled at the first-of-its-kind program.
As we discussed in our prior blog posts, here, here and here, passed by lawmakers and Governor Inslee in 2019, the Washington Cares Fund (“Act”) was set to begin collecting payroll taxes from Washington employees in January 2022 to help pay for the LTC expenses of the State’s residents. After a host of questions and criticism about the program, including a class action lawsuit filed against it, Inslee announced last month that the State would pause on collecting the tax from employers until lawmakers reassessed revisions to the program. However, because the Governor later backtracked on the moratorium, some employers have begun withholding a 0.58 percent payroll tax from Washington workers’ paychecks at the start of the new year.
On January 27, 2022, Governor Inslee signed House Bills 1732 and 1733 that temporarily halt the State’s payroll tax on Washington workers and institute changes intended to address criticisms of the Act.
The changes implemented under House Bill 1732 include:
- The start of the payroll tax was delayed to July 1, 2023;
- Benefits will not be available until July 1, 2026;
- Any premiums collected from an employee prior to July 1, 2023, shall be refunded to the employee within 120 days of the collection of the premium; and
- Workers born before January 1, 1968, who have not met the 10 year vesting requirements under the program’s current structure will be eligible to receive partial benefits based on the number of years paid into the program, as long as they have paid the payroll tax for at least one year.
The revisions under House Bill 1733 allow an employee to apply for an exemption from the program if they are:
- A veteran of the United States military who has been rated by the United States Department of Veterans Affairs as having a service-connected disability of at least 70 percent;
- A spouse or registered domestic partner of an active duty service member of the United States Armed Forces;
- Working under a non-immigrant visa for temporary workers and employed by an employer in Washington; or
- Employed by a Washington employer, but has a permanent address and primary residence out of state.
An employee who receives an exemption is permanently ineligible from receiving benefits under the program unless their exemption is discontinued because they no longer meet the exemption criteria.
Takeaways for Employers
In accordance with the new measures, employers who have withheld the payroll tax from employees and who have not sent the amounts to the State will need to issue refunds within 120 days of the collection date. To the extent amounts have been sent to the State, the State will also make refunds within this 120 day period. Employers who delayed withholding the payroll tax will not need to worry about any refunds, and not need to start implementing the tax until 2023.
While delaying the start of the program will allow lawmakers to fully address many of the systemic issues inherent in the Act, uncertainties remain for many employers and employees. For example, among additional changes that have been proposed is another bill that would allow people to exempt themselves from paying into the tax.
Seyfarth will continue to monitor and report on developments with respect to the Act. For additional guidance, please contact the authors of this blog or your attorney for more information.