New Payroll Tax - Washington Cares Tax & What It Means For Your Payroll
Forget about the intentions. Even those who like to see the government intervene in some social issue rarely smile when a new tax is announced.
Granted, taxes do help. But in some cases, don’t they just make our lives more miserable, make us adjust our systems — and needlessly increase the cost of doing business?
Starting July 2023, Washington residents will have to contend with a new payroll tax. This Long-Term Services and Supports Trust Program (LTSS) is commonly referred to the Washington Cares Tax.
But what is this new tax all about — and what does it mean for your payroll?
Stay on the page.
What Is the Washington Cares Tax?
The Washington Cares Tax is a social welfare initiative that will give workers in the state access to affordable long-term care as they age.
As you might already know, life expectancy in the United States has almost doubled over the last two centuries. In 1860, for instance, Americans lived for up to about 39 years on average. But by 2019, that figure had shot up to nearly 79 years.
The good part is that people now live for a couple of years after being out of work for some time.
But the bad news is that Americans now have to contend with old-age infirmities when they don’t have a constant salary.
That is where the Washington Cares Tax comes in.
How Will Workers Benefit From the Washington Cares Tax?
As a heads-up, workers will not receive direct cash transfers to cater for their care needs.
But that said, Washington workers will now not need to worry about the cost of care, whether in a home or other residential care setting.
Thanks to the Washington Cares Tax, the first of its kind in the United States, the social welfare fund will make direct payments of up to $36,500 for certain specified care services.
But wait.
Workers cannot access these benefits immediately. Eligible contributors will access these benefits from July 2026.
The raft of long-term care services eligible contributors in the state will be able to access include —
- Payment for qualified home care: The fund will pay the cost of care offered by a qualified care provider. Many will be happy to learn that these include care provided by a qualified family member, including a spouse.
- Payment for assistive equipment: The Washington Cares Tax will help pay for equipment that helps improve contributors’ mobility, among other considerations. These include wheelchairs and scooters.
- Payment for food delivery services: Since contributors may reach a point where they cannot cook or go to a restaurant, the fund will pay for meal delivery services.
- Payment for care supplies: Includes payments for items such as adult diapers, nebulizer kits (inhalers used for certain respiratory conditions), and wound care.
Other long-term care services the fund will cater to include education, training, and home accessibility enhancements such as lifts and wheelchair ramps.
What the Washington Care Tax Means For Your Payroll
The Washington Care Tax will impact your payroll in several ways.
For starters, from July 2023, the state government of Washington expects employers to start withholding 0.58% of their employees’ gross salary. This percentage, unlike for paid leave, is not capped at the taxable maximum for social security.
Also, the Washington Care Tax is a tax on employees — not employers.
This means employers don’t have to pay a dime for their employees. All they need to do is deduct the amount from employees’ payslips.
But this doesn’t mean an employer cannot voluntarily help their employees.
If they choose to, employers can pay a portion of what their employees would be deducted — or even the entire 0.58%. The employer contribution should be voluntary.
Additionally, as part of the Washington Care Tax regime, employers must make quarterly reports to the Washington Employment Security Department through the Paid Leave reporting system.
The quarterly reports (which should be accompanied by the accumulated deductions) should include information related to wages, hours, and workers actual premiums — among others.
The following are the deadlines for making the quarterly reports employers in the state should keep a tab on.
Another payroll-related responsibility employers will need to be keen on is that of effecting their employees’ approved exemptions.
This is because if an employer forgets and continues to withhold monthly premiums from their employees, they will be forced to reimburse the whole amount to the affected employees. If the amount is huge, this can affect the company’s cash flow negatively.
Other employer responsibilities related to Washington Care Fund exemptions include putting systems in place for—
- Collecting exemption approval letters from employees and retaining copies of the same.
- Receiving notices from workers who no longer qualify for an exemption, and
- Resuming payroll deductions if notified that a worker no longer qualifies for an exemption.
To recap, the Washington Care Tax will affect your payroll in the following ways.
- You’ll need to withhold an uncapped 0.58% from the gross salary of your workers every month beginning July 1, 2023.
- You’ll need to make quarterly returns to the Employment Security Department (ESD), and the returns should be accompanied by the withheld deductions.
- You’ll need to effect any exemptions that employees have been awarded by the ESD file copies of the exemption letters for record-keeping purposes.
Need Help With the Washington Care Tax?
If you need help with the Washington Care Tax — or any other payroll tax issue, our specialized and friendly payroll accountants will be happy to help. Just pick up your phone right now and book a 45-minute FREE consultation.
