Does California Have A Long-Term Care Insurance Tax?

Cassidy Jakovickas

May 15, 2024

Recently, many people have been wondering if California has enacted a long-term care insurance tax, similar to Washington State’s payroll tax. In case you didn’t know, on July 1st, 2023, Washington imposed a 0. 58% payroll tax to fund up to 36, 500 of long-term care for Washington residents.

Residents who had procured long-term care insurance by the end of 2022 could opt out of the program. Many people have been contacted by insurance companies telling them they should obtain long-term care insurance now to avoid California’s impending long-term care tax.

Some insurance companies are telling people that the California tax will be effective beginning in 2024 and that they have to buy insurance now so that they can obtain better coverage at a cheaper price and opt out of California’s tax. To be clear, California has not adopted a long-term care insurance tax.

AB 567 was enacted in 2019 to establish a task force to consider implementing a tax similar to Washington state’s. The task force has issued its recommendations to the California legislature, and the task force report is currently undergoing further financial analysis. The financial analysis will be provided to the legislature by January 1, 2024. You can read the task force’s feasibility report here.

At that point, the legislature will hold hearings and separate legislation would need to be drafted to implement a long-term care insurance tax. It’s unclear if and when this would occur. What we can safely say at this point is that there will be no tax imposed in 2024. Following the passage of Washington’s tax, 13 states are considering implementing a similar tax.

  • Alaska
  • California
  • Colorado
  • Hawaii
  • Illinois
  • Michigan
  • Minnesota
  • Missouri
  • New York
  • North Carolina
  • Oregon
  • Pennsylvania
  • Utah

The task force report provides five different options for what a long-term care insurance tax program could look like for California, covering a range of in-home or residential services at various costs. Under all of the proposals, individuals with eligible private insurance in place as of a certain date on or before the program’s effective date would be allowed to opt out of the program.

Any new policies sold after the effective date would be ineligible for opt-out but could qualify for reduced contributions. To be eligible to opt out or receive reduced contributions, the policy would have to meet certain standards, which have not yet been determined and would be subject to periodic recertification.

All five options included in the report include at least partial domestic or international portability, meaning some if not all of the individual’s benefits would be accessible if the individual paid the tax for several years and then retired outside of California, assuming they were fully vested in the program.

As mentioned previously, nothing is set in stone. All of the scenarios that we discussed are only hypothetical proposals. California has not enacted a long-term care insurance tax, and it is unclear if and when it will. If an insurance company comes calling this year, trying to push you into signing up, let them know you’re waiting until a decision is made for California in 2024.