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Is a California Long-Term Care Payroll Tax On the Horizon?

Is a California Long-Term Care Payroll Tax On the Horizon?

October 29, 2021
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Unless you’re a resident in the state of Washington, you’ve probably never heard of the WA Cares Fund. This is a first-in-nation public insurance program signed into law back in 2019 in the state of Washington. The program is designed to help pay for services related to long-term care health care, the costs of which have escalated tremendously across the nation.

At first glance this may seem like a novel approach to a health care financial crisis engulfing our elderly. However, there are nuances that have drawn praise and criticism by advocacy groups and politicians alike. 

Here’s how the plan works: 

  • Starting with the first paycheck in January 2022, all W-2 employees in the state of Washington will be taxed 0.58% of their gross wages. Some exemptions apply. 
  • There is no income cap for this tax. So whether you make $100,000 or $500,000, the 0.58% will be assessed. 
  • The maximum lifetime benefit you can expect to receive is up to $36,500 per individual.

Unfortunately, here’s where the program fails:

  • The average monthly cost for in-home or assisted living care in the Seattle area is currently $6,670 a month. 
  • To be eligible for benefits you must have contributed for at least 10 years without a break of five or more years. 
  • The only way to opt out of the program is to demonstrate you have personal long-term care insurance purchased by November 1. 
  • And, benefits can only be used in the state of Washington! If you move, you forfeit the benefit and the tax you put into the fund.

So why am I bringing this up? We’re not residents of Washington. Well, in October 2019, California Assembly Bill 567 (AB 567) was passed. The bill set forth a task force delegated to determine the feasibility of a potential long-term care tax for the state of California similar to Washington. The task force must present a feasibility study to the state commissioner, the Governor and the Legislature on or before January 1, 2023. They must then follow up with an actuarial report of recommendations no later than January 1, 2024.

Between now and then, this could go nowhere or it may gain momentum. Only time will tell but, as California residents, we do know this state tends to be on the forefront of progressive change. 

I share this with you because it is an important potential event on the horizon. The purpose of the bill seems well intentioned. However, the financials don’t quite add up to the current costs associated with long-term care. In fact, there are better options out there. Until then, we’ll keep our eye on it and provide talking points if California decides to move forward with the program.