Update as of December 23:
In our client alert below, we suggest that Governor Inslee overstepped his authority last week when he suggested, via press release, that employers might not need to collect the long term care premium tax via payroll withholding. On December 23, the Governor acknowledged that only the Legislature has the authority to eliminate the requirement that employers collect the premiums for long term care insurance under the WA Cares program. Indeed, the Governor explained that the State of Washington, in its capacity as an employer, will be following the law and will begin withholding the tax from employee paychecks as of January 1. The Governor remains confident that the legislature will fix many of the problems with the program when the legislative session convenes on January 10, 2022.
We alerted our readers last April to the Washington State Payroll Tax created to fund the Long Term Care Trust Fund. That tax described by the state here as WA Cares is scheduled to come into effect on January 1, 2022. Or was scheduled. Or maybe it still is scheduled.
Our earlier articles noted some of the program’s flaws. On December 17, the Seattle Times reported that politicians in Olympia have taken notice of those programmatic flaws, undoubtedly because more businesses and people have focused on them. This led Governor Inslee to announce that the State of Washington would not enforce the law, while encouraging employers to delay collection of the tax:
“Therefore, I am taking measures within my authority and ordering the state Employment Security Department not to collect the premiums from this program from employers before they come due in April,” Inslee said in the statement. “My actions mean that the state will not collect those funds until the Legislature sorts through these issues.”
This is an extraordinary action by the Governor. Our elected officials should be applauded for finally focusing on the program’s troublesome aspects. But it remains unclear whether the Governor has any legal authority to ignore existing law outside of the public emergency exception. It is also unclear whether employers should ignore their legal obligation to collect the tax, as Governor Inslee recommended:
“In addition to delaying the premium assessment, we also support employers pausing premium collections from employees in Washington so lawmakers can take necessary action. While we cannot direct employers not to collect, we strongly encourage them to pause on collecting premiums from employees, giving us time to pass legislation extending implementation dates until next year. We know that this extra time will allow us to find solutions and craft updates to the Fund that allows Washingtonians to age with dignity in their own homes.”
Governor Inslee did add that during the period that state collection of taxes from employers was paused, employers would not incur penalties or interest for failing to withhold those taxes from worker wages. But that may not be enough.
As Lawyers for Employers,™ we hesitate to advise our employer clients not to collect a payroll tax that the law requires them to collect. What happens if employees object to either withholding the Washington Cares premiums or lack of withholding? Who will be responsible for past due uncollected premiums if the law does not change or the effective date does not change? What if an employer withholds the tax but declares bankruptcy before it is paid into the trust fund? Or if the employee leaves employment, but the withheld tax does not need to be paid to the trust fund because the law changes? How should this “not currently-collected,” but possibly legally-accruing, potential “liability” be reflected on the employer’s financial statement?
At this point, no one knows the answers to these questions. We can only trust that the appropriate regulatory bodies, such as ESD, will provide the needed guidance to employers.