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Understanding the California Long-Term Care Tax: What You Need to Know









California is considering a Long-Term Care Tax that will mandate residents to pay an estimated increased income tax of 0.40 to 0.60% to cover the cost of state-funded long-term care programs.


In an effort to address the growing need for long-term care services and support, California has taken a proactive step by introducing legislation for a Long-Term Care (LTC) tax called Assembly Bill 567 which established a task force to investigate the increasing cost of long-term care. This tax aims to provide funding for essential long-term care services and alleviate the financial burden on individuals and families who require extended care in the future. In this article, we will delve into the details of this impending tax, including its anticipated implementation date, reasons behind its introduction, estimated tax amounts, and the opt-out process.


Last year, Washington state's long-term care program provides a maximum lifetime benefit of only $36,500, but the average American is expected to incur at least $137,800 in long-term care costs after age 65.


When will the tax be implemented?


The California Long-Term Care tax, also known as the Assembly Bill 567, is currently under legislation and is expected to be implemented by 2024. However, it is essential to stay informed about any updates or changes to the timeline, as legislation processes can evolve over time.


Why is the tax being introduced?


The need for long-term care services is increasing as the population ages, and California, like many other states, is seeking solutions to address this growing demand. The Long-Term Care tax aims to create a sustainable funding source to support essential long-term care services, including in-home care, nursing homes, and assisted living facilities. By implementing this tax, the state aims to ensure that individuals have access to quality care and reduce the financial burden on families who require such services.


What is the estimated tax amount?


While the exact tax amount is yet to be finalized, it is anticipated that the tax will be a .40-.60 percentage of an individual's income, with a maximum cap. The specific tax rates and income thresholds are subject to legislative decisions and may vary depending on factors such as income level and marital status. As the legislation progresses, it is crucial to stay updated on the specific details and consult with a tax professional or financial advisor for accurate information tailored to your circumstances.


The California LTC task force has recommended 5 plan designs ranging from $36,000 of supportive LTC benefits to $144,000, the most comprehensive LTC benefit.


California payroll tax rate to be based on plan design governor selects

Payroll tax is likely to be level and may be split between employer and employee(s).


Opt-out provision if purchased “eligible” private LTC insurance before the program’s effective

date and contributions are reduced if purchased after the program's effective date in 2024.


California employees may want to start the process of purchasing private long-term care

insurance now to avoid the rush for long-term care insurance coverage that we saw in

Washington state.


How to opt out of the tax:


Although the Long-Term Care tax will be mandatory for most California residents, there is an opportunity to opt out of the program. Individuals who already have private long-term care insurance policies that meet specific criteria will have the option to exempt themselves from paying the tax. To opt out, policyholders must provide proof of their qualifying private LTC insurance coverage during the designated opt-out period. It's important to note that opting out means forfeiting access to the benefits provided by California's Medi-Cal program, so carefully consider your options and consult with an insurance professional before making a decision.


Conclusion:


The introduction of the California Long-Term Care tax signifies the state's commitment to addressing the needs of its aging population and ensuring accessible and affordable long-term care services. While the exact implementation date and tax details are still being determined, it's important to stay informed about the legislation's progress and its potential impact on your financial situation.


If you already have private long-term care insurance coverage that meets the requirements, you may have the option to opt out of the tax.


If you don't have private long-term care insurance and would like to explore some options, contact us today for a FREE quote and consultation.

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