Long Term Care Payroll Tax Updates and Insurance Options
Several states are considering, or have started implementing, a payroll tax to fund a minimum amount of long term care benefits. Five states have active legislation in process. Please select your state in the dropdown below. If your state does not appear in the list, it means that, to our knowledge, the state does not have legislation pending.
States With Pending Legislation
Select your state to learn more
New York
In New York, there appears to be a draft plan in the Senate that is similar to the Washington plan, with a tax on earned income giving the taxpayer $36,500 to pay for care and available five years after the plan becomes law. Again, until the legislation is finalized and ratified, it’s difficult to know how it will shake out. In the draft plan there is a proposed exemption if an employee owns long term care insurance prior to January 1st of the year in which the law is enacted. A link to the draft legislation can be found here.
Insurance Market Update:
There are approximately 8,700,000 employees in New York or more than twice the number in Washington state.
There are significantly fewer group and individual products and carriers in New York than Washington.
BuddyIns expects capacity of individual products in New York to be extremely limited, but group products with streamlined underwriting may have more availability.
California
California continues its push towards a payroll tax model similar to Washington that would fund a minimum long-term care benefit. The California Long Term Care Insurance Task Force provided recommendations regarding the legislation. See the Insurance Market Update below.
The Task Force will recommend options for establishing a statewide long-term care insurance program. A presentation of the draft feasibility report is scheduled for October 6, 2022. A final report is expected to be presented on December 15, 2022.
Early indications are that a proposed tax would be on earned income for W-2 employees. It is unclear yet how an exemption would work if someone owns a qualifying long-term care insurance policy.
Insurance Market Update:
Per the California Long Term Care Insurance Task Force:
- May split the cost of the payroll tax between employer and employee
- May also allow an opt-out provision if the employee has a private LTCi policy
- No firm details on what the California payroll tax exemption will look like
Additional Information – See our CA Update for more information and updates
- There are approximately 16,500,000 employees in California or more than 4 times the number in Washington state.
- It’s important for employees to obtain meaningful LTCi coverage and to start the process before any final state announcements are made. This will help avoid the rush for long term care insurance coverage that we saw in Washington.
- There are slightly fewer group and individual products and carriers in California than in Washington mostly because product approvals from the state take longer. Carriers may accelerate new solutions to market depending on the results of the feasibility report
- BuddyIns expects the capacity of individual products in California to be limited, but group products with streamlined underwriting may have more availability
Pennsylvania
A proposed bill in Pennsylvania, HB 2779, was introduced on August 22, 2022 and is similar to the WA Cares Act. Obtaining meaningful LTCi coverage is an important conversation that should happen regardless of this legislation.
Highlights of the Pennsylvania House Bill 2779 include:
- Self-employed will be able to opt-in
- Funded through a payroll tax of 0.58%
- Benefit is $100/day up to a $36,500 maximum lifetime benefits
- To qualify for the benefit, the person must be at least 18 years of age and have worked a minimum of 500 hours per year in the state, irrespective of resident state
- Similar to WA, requires residency to receive benefits
- Benefit disbursements could begin on January 1, 2026
- Claim qualification is based on three activities of daily living (ADLs)
There may be an exemption to the long term care state payroll tax but there are few details on what that might look like. It’s important to have a conversation about meaningful coverage regardless of any state payroll tax or exemption.
Washington
Known as the Washington Cares Fund, this legislation, signed into law in 2019, provides access to a lifetime benefit amount that can be used on a wide range of long-term services and supports. W-2 workers are expected to begin contributing to the fund in July 2023 with the first benefits available in July 2026.
- Contributions: Washington workers will likely pay $0.58 per $100 of earnings. Most employees will contribute, and employers are responsible for collecting the tax and remitting it to the Washington Cares Fund.
- Benefits: Starting in July 2026, each person who is eligible to receive the benefit can access care costing up to $36,500 (adjusted annually for inflation) over their lifetime.
- Eligibility: To be eligible to receive the benefit, you must meet contribution requirements and need help with at least three activities of daily living.
- State is considering a recertification process for those who chose to opt-out through the purchase of long term care insurance.
- Benefit portability (qualifying for the benefit if an employee moved out of state) is still an outstanding issue.
- Benefit qualifications may change from what was originally adopted.
Insurance Market Update:
- Approximately 480,000 out of the 3,800,000 employees (13%) opted out of the Washington Cares Fund through the purchase of group or individual LTC Insurance or Life Insurance with LTC riders. This was despite most carriers being overwhelmed by demand over a short period of time and exiting the marketplace. These carriers have since returned to the market.
- BuddyIns estimates that more policies were purchased through group solutions, but more premium was purchased from individual products.
- Despite only a limited time to purchase coverage and only in one state, the sales in Washington increased the LTC Insurance marketplace in the entire country by at least 200%. Premiums increased more modestly given the lower average premium per policy.
Minnesota
A draft of a bill that is similar to the Washington State legislation was introduced in 2021. There has been no known update. As drafted, the bill provides 365 Benefit Units of $100 each to eligible beneficiaries payable to qualified providers. This benefit is funded by a long term care state payroll tax and there is no known exemption. There was also recent momentum on legislation allowing for certain Hybrids that combine term life insurance and long term care insurance as a lifestyle plan, so it seems that many things are still on the table in the land of 10,000 lakes. A link to the draft legislation can be found here.
Insurance Market Update:
There are approximately 2,700,000 employees in Minnesota.
There is similar product availability in Minnesota as in Washington, so BuddyIns expects capacity of individual products in Minnesota to be similar to Washington.
Want more information about Long Term Care? Read our Guide to Long Term Care Insurance.
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Frequently Asked Questions
Funding for a long term care benefit may be provided through a payroll tax on W-2 employees. Each state will have its own policies and procedures. Please consult with a long term care specialist for guidance related to your state.
Currently, in WA and CA, a tax of 0.58% of all wages is proposed. This may include income, bonuses, vacation time, and the value of stock grants.
For example, if you make $100,000 annually on all wages, the LTSS payroll tax for this year would be 0.58% x $100,000 = $580. This is about $48 per month for every $100,000 of annual wages. If your income triples over the course of your career, you may pay $1,740 each year but may not receive any additional coverage with the state program.
Costs and benefits may vary by state.
Each person who is eligible may receive a minimum benefit (for example, up to $36,500 or $1,500 per month in WA). The nominal value of this benefit may change over time and other benefit levels are being explored.
There may be some level of portability to the benefit but that has not yet been finalized and each state will be different.
The average length of long term care is 2.5 years. The average monthly cost of a home health aid is $5,148. The proposed benefit of the state legislation is a minimal one. Long term care insurance is coverage that pays for nursing-home care, home health care, care in an assisted living facility, nursing home care, and personal or adult daycare for individuals with a chronic or disabling condition that needs constant supervision. LTC insurance may offer more flexibility and choice of providers when compared to many public assistance programs, such as Medicaid. Download our Cost of Care Report for information related to current and projected long term care costs.
While researching your LTCi options, you will be matched with an LTCi specialist with years of experience to help guide you to the best plan for your dollar. The consultations are complementary.
LTCi policies may provide:
- A much greater pool of benefit dollars in the future to supplement the high cost of care
- Longer duration of benefits
- Options to get a return of premiums or life insurance if LTC benefits are never used
- The ability to adjust your coverage in the future
- Spousal discounts and discounts for being in good health
- Coverage immediately after issue (no vesting period is required)
- Portability to use the benefits in any state or Canada (international benefits may also be available)
- Tax incentives, such as the ability to use your Health Savings Account (HSA), tax deductibility for business owners, and tax-free benefits
Long term care insurance is coverage that pays for nursing-home care, home health care, care in an assisted living facility, nursing home care, and personal or adult daycare for individuals with a chronic or disabling condition that needs constant supervision. LTC insurance may offer more flexibility and choice of providers compared and options than many to public assistance programs, such as Medicaid.
While researching your LTCi options, you will be matched with an LTCi specialist with years of experience to help guide you to the best plan for your dollar. The consultations are complementary.
LTCi policies may provide:
- A much greater pool of benefit dollars in the future to supplement the high cost of care
- Longer duration of benefits
- Options to get a return of premiums or life insurance if LTC benefits are never used
- The ability to adjust your coverage in the future
- Spousal discounts and discounts for being in good health
- Coverage immediately after issue (no vesting period is required)
- Portability to use the benefits in any state or Canada (international benefits may also be available)
- Tax incentives, such as the ability to use your Health Savings Account (HSA), tax deductibility for business owners, and tax-free benefits
Yes, there are a variety of reasons to buy more coverage. Your LTCi specialist can shop the market to find the best value.
Reasons to buy more than the minimum:
- Each state has varying degrees of costs. The medium cost of care in California today is $201 per day compared to the $50 per day offered by the minimum plan
- Private LTCi may be a better value when buying more years of coverage because the additional years cost incrementally less
- You may be able to pre-pay the premiums to have your premiums paid before retirement
- Extra features, such as return of premiums, may be available if the LTCi is never used
- You may be able to pay with pre-tax dollars from an HSA or write off the premiums as a health insurance business expense
Yes, there are a variety of reasons to buy more coverage. Your LTCi specialist can shop the market to find the best value.
Reasons to buy more than the minimum:
- The medium cost of care in Washington today is $200 per day compared to the $100 per day payout offered by the minimum plans
- Private LTCi may be a better value when buying more years of coverage because the additional years cost incrementally less
- You may be able to pre-pay the premiums to have your premiums paid before retirement
- Extra features, such as return of premiums, may be available if the LTCi is never used
- You may be able to pay with pre-tax dollars from an HSA or write off the premiums as a health insurance business expense
HSA funds can be used to pay LTCi premiums.
- You may be able to contribute pre-tax dollars into your HSA up to annual limit.
- You may be able to pay the premium and request reimbursement from your HSA administrator for you or your spouse each year up to an annual age-based limit.
- Business paid LTCi premiums may be a tax-deductible business expense as health insurance for employees and spouses.
- Self-employed business owners may also be able to deduct LTCi premiums on their individual tax returns up to an annual age-based limit.
- Owners can select which executives or employees to include in the LTCi program.
- LTCi benefits are generally received tax-free even after the tax deduction.
By filling out the above form, you can meet remotely with an LTCi specialist with years of experience for free to help guide you to the best plan for your dollar.
Our LTC specialist community is here to help. Long term care planning may be one of the most meaningful things you can do for your family to protect them from becoming unintended caregivers.
Our LTC Specialists will help you address the three most common questions we receive: "Who will take care of me when I am older?", "How will I pay for this care?", and "Should I opt-in, or opt-out of the payroll tax?"
The first step is to book time with a BuddyIns long term care specialist for a 30 minute consultation. You will also complete a quick health history assessment. This will help your specialist determine what kind of plans fit your needs best and the plans for which you qualify.
Your specialist will put together a proposal of one or more plans based on your individual and family's needs. Once you choose a plan, your specialist will submit your application on your behalf by asking you a series of questions required by the provider.