Is there a California long-term care tax?
I recently spoke with a woman in California who wants her husband to buy long-term care insurance.
I asked, “What prompted you to look into long-term care insurance.”
She replied, “The California Long-Term Care Tax”.
I explained to her that California has not yet passed a “Long-Term Care Tax.” She was surprised by my answer.
Then she asked, “What kind of benefits must my husband buy to be exempt from the California long-term care tax?”
I said, “Since there has not been any law passed to create a public long-term care program, we have no way of knowing how someone might be exempt from a ‘California long-term care tax’ or what kind of long-term care insurance benefits they might need to buy to be exempt from the tax.”
She then asked, “Then why is everyone talking about a California long-term care tax?”
I told her that “everyone is talking about a California long-term care tax” because of the feasibility report published by the California Long-Term Care Insurance Task Force.
In a recent communique to all insurance agents, the California Insurance Commissioner said this:
“… the (California Long-Term Care Insurance) Task Force recommended various possible structures for a public LTC program, including different funding mechanisms. One potential means of funding such a program is by instituting a payroll tax on California employees. The Task Force has recommended that consideration be given to allowing residents who have a qualifying private LTC policy to opt out of the public program, which would mean they would not be subject to a payroll tax. It is possible that only policies purchased prior to a certain date would qualify to allow a resident to opt out of the program.” — California Insurance Commissioner Ricardo Lara, Agent & Broker Alert, August 23rd, 2023
After another conversation and exchanging some emails, she and her husband decided to apply for a long-term care insurance policy. They applied for a policy with slightly richer benefits than the benefits recommended in the feasibility report written by the Task Force.
They decided to buy a policy, not just because of a possible public LTC program, but because long-term care insurance made sense for their financial situation (i.e., they have enough income and/or assets to protect from the risk of long-term care to justify the cost of owning long-term care insurance.)
When one of your friends, relatives, or co-workers asks you, “Is there a California long-term care tax?”, please send them a link to this page.
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