Seyfarth Synopsis: On Friday, Washington State Governor, Jay Inslee, announced a moratorium on the State’s collection of the Washington Cares Fund long term care (“LTC”) payroll tax. The Washington Cares Fund was originally set to begin collecting taxes in January 2022 to help pay for the LTC expenses of the State’s residents. For more information on Washington Cares, see our blog post, our legal update, and a recording of our webinar.

In light of a class action lawsuit filed against the Washington Cares Fund and a pending citizens’ initiative (I-1436) which would make it optional to participate in Washington’s long-term care insurance, Governor Inslee announced on Friday that he and the State Legislature have been having ongoing discussions about the long-term care legislation and have identified some areas that need adjustments.

As a result, Inslee is ordering the state Employment Security Department not to collect the LTC payroll taxes from employers that were scheduled to begin in January.

“My actions mean that the state will not collect those funds until the Legislature sorts through these issues,” Inslee said in a statement. “While legislation is under consideration to pause the withholding of LTC fees, employers will not be subject to penalties and interest for not withholding fees from employees’ wages during this transition.”

In response, we anticipate that employers will not begin collecting the payroll tax in January and instead will wait for additional guidance from the State. Employers should consider sending employees notification of this change.

Although many employees will welcome the moratorium, some employees who purchased LTC coverage in order to opt out of the payroll tax may want to unwind the coverage as soon as possible. Until additional guidance is issued, however, it is not clear how future opt outs from the Act will work and whether it would be advisable to drop coverage now.