Find essential information about payroll tax legislation for Long-Term Care below.
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What You Need to Know About Payroll Tax Legislation for Long-Term Care
States are considering a payroll tax for long-term care benefits because of the rising costs of care and the financial strain on Medicaid, which is the primary payer for long-term care services. Many individuals do not plan for long-term care believing that their health insurance will cover the costs, leading them to rely on government assistance when they need it. By implementing a payroll tax, states aim to create a state-managed fund to help cover long-term care expenses and reduce reliance on Medicaid.
Several states are considering the legislation following the example set by Washington State, which enacted the WA Cares Fund. While this initiative aims to address the growing need for long-term care, it may not provide sufficient coverage for many individuals.
The legislative process is far from predictable.Regardless of whether your state passes legislation, it is important to consider LTC planning
The LTC with Life Insurance benefit offered during this enrollment period may provide an affordable foundation of coverage to build on later.
History of the Legislation
Washington State was the first to enact a payroll tax for long-term care, launching the WA Cares Fund in 2019. The program requires workers to contribute 0.58% of their earnings to a state-managed fund, providing a lifetime benefit of $36,500 for long-term care services.
Other states, including California, New York, Minnesota,Pennsylvania, and others, are actively considering similar legislation. These states recognize the high cost of care and the need for a financial safety net.
Some states are exploring opt-out provisions, allowing individuals to avoid the tax if they own qualified private long-term care insurance.
Critics argue that the state-provided benefits are too low to cover actual long-term care costs, making private insurance a more reliable option.
This state activity summary is an interpretation based on available information at the time. Changes to the proposed legislation are anticipated throughout this process. Please refer to the individual State websites for further details.
States Considering Similar Legislation
As noted previously, currently, California, New York, Minnesota, Pennsylvania, and other states are exploring similar payroll tax programs. These proposals vary in structure but generally involve a mandatory payroll tax on workers to fund a state-provided long-term care benefit. Some states may offer exemptions for individuals who own qualified private long-term care insurance, but these provisions also vary by state.
Why Private Long-Term Care Insurance Matters
Private long-term care insurance can fill the gaps left by state programs and ensure comprehensive coverage. Here's how it complements state initiatives:
Higher Benefit Amounts – State programs often provide limited financial support, like Washington State’s $36,500 lifetime benefit, which may not cover prolonged care needs. Private policies offer substantially higher coverage so you can explore coverage that fits your budget.
More Care Options – While state-funded benefits may restrict care providers or facilities, private insurance may give greater flexibility, allowing policyholders to choose their preferred providers and services.
Protection for Higher-Income Earners – Payroll tax-based state programs deduct contributions from all workers, regardless of income. Those with higher earnings may pay more into the fund but receive the same limited benefits. Private insurance customizes coverage to match individual needs.
Coverage Before Retirement – State long-term care benefits often kick in only when needed for care later in life. Private insurance ensures protection sooner, covering unexpected events like disability or early-onset illness.
Asset Protection – Without adequate coverage, individuals may have to spend personal savings or rely on Medicaid, which can require asset liquidation to qualify. Private insurance shields retirement funds and personal assets.
By combining private insurance with state benefits, individuals create a stronger safety net, ensuring better care options, financial security, and peace of mind.
Take Action Now
Now is the time to explore your private insurance options, including the option provided through your employer. Waiting may limit your ability to opt out of any state program, if an opt out provision is offered, or secure affordable coverage because of your age or health conditions.
For more details on state-specific legislation, visit https://buddyins.com/resource/long-term-care-state-payroll-tax-update.