What Happens If Employers Miss the Washington LTC Tax Opt-Out Window

Washington Opt-Out Window Closed: Consequences for Employers

Washington's long-term care insurance program (WA Cares) established a limited opt-out window that closed December 31, 2022. For employers still operating in Washington, understanding the consequences of this closed window is critical. Employees who did not opt out by the deadline are now permanently covered under the program, and employers must maintain compliance with ongoing withholding and documentation obligations.

This article addresses the key consequences of the missed opt-out deadline and what employers need to do now.

The Opt-Out Window: What Happened and Why It Matters

Washington's WA Cares program was established under Senate Bill 5096, signed into law in 2019. The legislation created a mandatory long-term care insurance program with a limited opt-out opportunity from December 1, 2022 through December 31, 2022.

The opt-out window was intentionally narrow: Only 31 days for employees to submit exemption applications and for employers to process and forward those applications to the state. This compressed timeline meant:

• Employees needed to understand the program and make a permanent decision within one month
• Employers faced urgent administrative requirements during the holiday season
• Any communication delays or missed notifications meant permanent coverage enrollment
• Multi-state employers managing payroll systems in other states had minimal time for WA-specific compliance procedures

Why this timing matters now: Employees who did not submit opt-out applications by December 31, 2022 are permanently covered under WA Cares. They cannot change this status unless they meet specific exemption criteria established after the opt-out window closed (primarily new exemptions added in 2023 through SB 5395).

This permanence creates a cascading consequence: employers with employees who missed the opt-out deadline must now manage ongoing WA Cares withholding obligations for those workers indefinitely, or until they separately qualify for a post-window exemption.

Post-Deadline Exemptions: Limited Options for Permanent Coverage

For employees and employers, the closed opt-out window doesn't mean zero options. However, post-deadline exemptions are substantially more limited than the pre-window opt-out opportunity.

Washington law provides exemptions for specific categories:

• Military active duty exemption: Employees on federal military active duty assignments are exempt
• Out-of-state work exemption: Employees working entirely outside Washington are exempt (with documentation)
• Part-time employment exemption: Employees working fewer than 500 hours per year are exempt (effective 2023 via SB 5395)
• Public employee exemptions: Certain government employees covered under public employee benefit programs

Critically, these exemptions require documentation and proof:

Employers must maintain records demonstrating exemption eligibility. An employee claiming "I work mostly out of state" requires payroll documentation showing zero or minimal Washington wages. An employee claiming part-time status requires time records showing fewer than 500 hours annually.

This documentation requirement creates a secondary consequence for employers who did not carefully track exemption status before the opt-out deadline closed. Retroactive documentation of exemption eligibility is substantially harder than maintaining exemption records from the time of hire.

Employer Compliance Burden: Permanent Withholding Obligations

For the majority of employees who did not opt out and do not qualify for exemptions, employers face permanent WA Cares withholding obligations. This creates ongoing payroll administration costs:

Withholding calculations: Employers must calculate 0.58% payroll tax on covered wages for each eligible employee, every pay period, indefinitely (or until the employee leaves employment or becomes exempt).

Remittance obligations: Withholding amounts must be remitted to the Washington State Department of Social and Health Services on a quarterly schedule, with accompanying documentation of participating employees and wages withheld.

Reporting requirements: Annual reconciliation of WA Cares withholding is required, similar to other state payroll tax reporting. Errors or under-withholding can trigger compliance audits and penalty assessments.

Payroll system integration: Most payroll systems have integrated WA Cares withholding, but setup requires accurate employee classification and ongoing maintenance. Any payroll system changes or provider migrations must include WA Cares functionality preservation.

Record retention: Employers must maintain records of exemption determinations, opt-out application submissions (for employees who opted out), and ongoing wage calculations supporting WA Cares withholding. These records support state audit responses and employee inquiries about benefit eligibility.

For employers with 50+ Washington employees, this represents a material ongoing administrative obligation. For smaller employers, the per-employee burden of documentation and withholding calculation may exceed the actual tax liability.

The Timing Consequence: When Benefits Begin

A second major consequence of the closed opt-out window is that employees now permanently covered became eligible for WA Cares benefits as of January 1, 2026.

What this means:

• Employees with long-term care needs arising on or after January 1, 2026 can claim benefits from the state program
• Benefits are paid directly to approved long-term care service providers (nursing care, in-home assistance, adult day care facilities)
• The benefit structure provides up to $36,500 in lifetime support for qualifying long-term care services
• Coverage extends to qualified work-related disability events as well as age-related care needs

For most covered employees, this benefit is valuable and represents real coverage they did not have before. However, for some employees (particularly younger workers or those with substantial private long-term care insurance), permanent coverage they did not choose creates a sense of forced participation despite the initial opt-out opportunity.

Multi-State Workforce Complications

For employers managing workforces across Washington, California, and New York, the closed WA Cares opt-out window creates complexity for workers who relocated or are considering relocation:

Scenario 1: Employee opted out before moving to California

The employee's WA Cares opt-out status is permanent. If California implements its proposed program after the employee relocates, they would be subject to California's separate requirement. They now manage contributions to two different state programs (assuming California regulations don't provide out-of-state exemptions).

Scenario 2: Employee was covered in Washington and relocated to New York

If New York's S1179 passes, the employee becomes subject to New York's separate program. WA Cares coverage remains portable (the employee maintains eligibility for Washington benefits), but now manages two state programs. New York likely would not provide exemptions for Washington-covered workers.

Scenario 3: Employee was covered in Washington and became exempt through SB 5395

The employee's post-deadline exemption status ends their WA Cares withholding obligation. However, if they relocate to California or New York, they face those states' separate program requirements independent of Washington status.

For employers, this creates permanent record-keeping obligations for any Washington employee who might relocate. Even years after an employee leaves Washington, employers may need to demonstrate their WA Cares status to support benefit inquiries or multi-state tax compliance.

Psychological and Morale Consequences

Beyond the administrative and financial impacts, the closed opt-out window creates employee relations consequences that employers should recognize:

Permanent participation without choice: Employees who did not understand the opt-out window or missed notifications due to life circumstances now participate in a mandatory program they may not have chosen. This creates ongoing morale friction, particularly when the 0.58% withholding appears on paychecks.

Benefit uncertainty: While benefits began January 1, 2026, most employees still do not understand what WA Cares covers, when they can access benefits, or how to navigate the claim process. This creates a perception of "paying for something I don't understand."

Fairness questions: Employees who were aware and opted out resent paying for continued coverage while workers who missed the window are permanently covered. This creates internal equity concerns, particularly in small-employer environments where the opt-out decision is known across the company.

Multi-state fairness: Employees relocating to California or New York after being forced to participate in Washington's program view the multiple state programs as redundant and excessive. Explaining why they cannot opt out of California's or New York's program (despite already paying for Washington coverage) creates frustration with employer and state policy.

Employers should acknowledge these concerns transparently and provide clear education about benefit structure and access procedures. This does not eliminate the perception of forced participation, but it demonstrates employer commitment to helping employees understand the value they are receiving.

Strategic Responses and Documentation Requirements

For employers currently managing Washington workforces post-opt-out window closure, several strategic approaches address the ongoing compliance burden:

Exemption audit: Conduct a comprehensive review of all Washington employees to identify any who qualify for post-window exemptions (part-time status, out-of-state work, military active duty, public employee status). Document all exemptions with supporting payroll or HR records.

Payroll system verification: Confirm that payroll systems are correctly identifying exempt employees and calculating withholding only for non-exempt, non-opted-out workers. Any system errors could result in under-withholding and subsequent state audit exposure.

Employee education: Develop clear communications explaining WA Cares benefits, coverage scope, claim procedures, and the permanence of coverage for those who did not opt out. This addresses employee understanding gaps and demonstrates employer compliance commitment.

Documentation retention: Establish procedures for retaining all exemption records, opt-out application confirmations, and payroll calculation documentation. These records support state audit responses and employee benefit inquiries.

Benefit coordination planning: If developing private long-term care insurance programs as employee benefits, coordinate these with WA Cares coverage to avoid redundancy while maximizing overall protection. Explain to employees how private and state benefits work together.

Multi-state integration: For employers with Washington and other-state operations, develop integrated documentation procedures that track employee location changes and associated WA Cares status changes. This is particularly important if Washington employees relocate to California or New York as those states implement separate programs.

Conclusion: Compliance and Communication Going Forward

The closed Washington opt-out window represents a permanent shift in the state's long-term care landscape. For most covered employees, the shift to mandatory permanent participation began January 1, 2026 when benefits started.

For employers, the compliance requirements continue indefinitely. Maintaining accurate exemption documentation, calculating withholding correctly, and remitting funds on schedule are ongoing obligations. The alternative - permitting under-withholding or inaccurate exemption determinations - exposes employers to state audit risk and employee disputes.

Beyond compliance mechanics, employers managing Washington workforces benefit from clear employee communication about the permanence of coverage and the value of WA Cares benefits. Transparent education addressing employee questions about fairness, program mechanics, and benefit access demonstrates employer commitment to compliance and employee welfare.

For multi-state employers, integration of Washington compliance procedures with California and New York planning represents an opportunity for comprehensive long-term care strategy. Understanding each state's program structure, exemption rules, and opt-out timing (or closure) enables more effective workforce planning across all three major states implementing long-term care requirements.

Related resources: Understand state-specific requirements in the Washington LTC Tax employer guide. Compare multi-state approaches in the Tri-State LTC Tax Comparison. Master compliance documentation in the LTC Tax Compliance Checklist.