Another payroll tax hike will hit Washingtonians’ paychecks next year

With Washington state’s new long-term care payroll tax garnering the lion’s share of media coverage, the general public may not realize the state Employment Security Department (ESD) announced a 50% increase for the Paid Family and Medical Leave payroll tax.

Effective Jan. 1, 2022, the tax will go up from 0.4% to 0.6% to help pay for up to 18 weeks of family and medical leave to some full- and part-time workers. Per state law, the rate is determined by the ratio of the trust fund balance divided by the total wages paid in the previous year.

For a worker making an annual wage of $76,741, that translates into a weekly premium payment this year of $5.90 increasing to $8.85 next year.

The percentage split for employer and employee contributions is also changing for 2022. Employers with at least 50 employees are to pay almost 27% of the total premium due, and employees are to pay a little more than 73%. The current split is nearly 37% for employers and just over 63% for employees.

The paid family and medical leave mandate was passed by the legislature in July 2017 and signed into law by Inslee, with collection from employers and workers beginning on January 1, 2019. Every worker in the state was eligible to collect benefits as of January 1, 2020.

The Paid Family and Medical Leave rate boost is the result of higher usage and reduced payrolls during the COVID-19 pandemic. Benefits paid for family leave claims have been about twice the benefits paid for medical leave claims for the past 15 months, according to ESD data.

In other words, while overall usage has been high, the total premiums collected during quarterly reporting have been lower because of reduced payrolls due to the pandemic.

News of the tax hike came out last month to little fanfare compared to the implementation of the new 0.58% payroll tax to fund the long-term care trust that has been in the headlines.

The tax for the “WA Cares” program – signed into law by Inslee in 2019 – is also set to go into effect on January 1, 2022. The long-term care tax has no employer-paid portion of the premium, and beneficiaries will be eligible to begin collecting in 2025.

Substitute House Bill 1323, passed in April and signed into law by Inslee later than month, gave Washington residents until November 1 to opt out of the state program by buying their own long-term care insurance by the deadline and then applying for an exemption.

In September, 23 state senators – 21 Republicans and two Democrats – urged Inslee to use his emergency powers to suspend the law to “provide temporary relief to employees who face a major new tax and give time for the Legislature to work on a solution,” they wrote in a letter.

In October, the state’s “WA Cares” program webpage crashed due to a crush of people seeking exemptions from the new tax.

The Paid Family and Medical Leave payroll tax – along with the new long-term care tax, as well as possible increases in unemployment insurance taxes to replenish the unemployment insurance trust fund – means less money in the pockets of workers and their employers.

“It keeps getting more expensive to live and work in Washington state,” observed Elizabeth Hovde, director of the Center for Health Care and Center for Worker Rights, at the Washington Policy Center. “Payroll taxes being imposed to grant benefits to workers — that they may never need or want — might make lawmakers feel generous, but workers and employers are paying the bill.”

This article was originally posted on Another payroll tax hike will hit Washingtonians’ paychecks next year