Is a Long-Term Care Tax Coming to Your State?
March 2, 2025
Several States Are Considering a Payroll Tax for Those Without Long-Term Care Insurance
For years, state and federal governments have offered tax incentives to encourage the purchase of long-term care insurance. Now, some states are going a step further by proposing mandatory payroll taxes for workers who do not own a qualified long-term care insurance policy.
This shift began with Washington State, which implemented the first such tax in the U.S. Workers without private LTC coverage now pay 0.58% of their wages, with few exceptions.
States Actively Considering a Long-Term Care Payroll Tax
The following states are the closest to implementation:
Additional states have entered early discussion phases, including: Alaska, Colorado, Hawaii, Illinois, Maine, Michigan, Minnesota, Missouri, Montana, North Carolina, Oregon, and Utah.
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Washington State: A Cautionary Tale
The State of Washington gave residents only a short window to opt out of its new LTC payroll tax by purchasing private insurance. Many missed the deadline and are now required to pay the tax for life (as long as they work in the state), regardless of whether they ever use the limited benefit.
The WA Cares Fund offers just $36,500 in lifetime benefits, which covers a fraction of actual care costs:
- Nursing home care: $125,000+ per year today and is projected to exceed $225,000 in 20 years
- In-home care: $80,000 per year (44 hours/week) and is projected to exceed $140,000 in 20 years
👉 Learn more about the Washington State Long-Term Care Payroll Tax
Why Lawmakers Are Proposing LTC Taxes
The Medicaid program, the nation’s largest payer of long-term care, is under increasing financial strain. Unlike Medicare, Medicaid is a needs-based program, available only to those who spend down most of their assets.
With people living longer and needing more care, states are seeking new ways to ease the burden on Medicaid. Unfortunately, many proposals offer minimal benefits in exchange for lifetime payroll taxes, especially for those without private coverage.
States Closest to Implementation
California
California has explored LTC funding solutions through the Long-Term Care Insurance Task Force 
and commissioned a detailed report from Oliver Wyman. While no bill was introduced in 2024, the state is expected to revisit legislation soon. Questions remain about whether hybrid LTC policies will qualify for opt-outs, and what minimum coverage standards will apply.
👉 Explore LTC Insurance Options in California
New York
New York’s 2024 bill (S8462 
) included new exemptions for veterans and non-residents. However, for opt-out purposes, the definition of LTC insurance remains limited to traditional policies—excluding hybrid plans for now. Discussions continue on whether the program will expand coverage eligibility and adjust benefit triggers.
Maryland
Although Maryland introduced a study bill in early 2024, both sponsors withdrew it. For now, legislative momentum appears paused, but prior activity suggests the issue may return in future sessions.
Pennsylvania
Pennsylvania introduced similar LTC tax bills in 2022 and 2023, both modeled after Washington’s 0.58% payroll tax. The proposals included opt-out options for individuals with LTC insurance but lacked specific policy definitions. Lawmakers may revisit this legislation again in 2025.
States in Early Consideration Phase
These states are in the early stages of exploring long-term care payroll taxes. Click to expand details for each state.
Alaska
Alaska is exploring long-term care financing due to its high care costs and remote geography. Early discussions include reviewing Washington’s model and assessing feasibility in the state’s unique fiscal environment.
Colorado
Colorado lawmakers have begun evaluating long-term care tax solutions driven by a rapidly aging population and rising healthcare costs. Initial discussions focus on sustainability and equity.
Hawaii
Hawaii is examining long-term care financing as part of broader healthcare reform. The state is exploring ways to adapt mainland models to its island-based healthcare challenges.
Illinois
Illinois has discussed payroll tax models in response to budget constraints and growing care demands. Lawmakers have reviewed Washington’s template but have yet to propose formal legislation.
Maine
Maine is considering tax-based solutions due to its aging, rural population. Feasibility studies have been commissioned, though implementation strategies remain under discussion.
Michigan
Michigan’s legislature is studying how a long-term care payroll tax could work given the state’s aging population and manufacturing-heavy economy. Multiple funding models are under review.
Minnesota
Minnesota is seen as a likely early mover in 2025 or 2026. Policymakers are actively reviewing Washington’s structure and considering how to adapt it to Minnesota’s social programs.
Missouri
Missouri has initiated early conversations about long-term care funding. While its conservative climate may shape legislation differently, state leaders are tracking other states’ progress.
Montana
Montana’s rural nature and aging population have prompted early-stage legislative reviews of long-term care tax models. Discussions focus on adapting other state approaches to Montana’s needs.
North Carolina
North Carolina is beginning to explore long-term care financing as healthcare costs rise. Early studies are assessing tax models that could balance affordability and access.
Oregon
Oregon has followed Washington’s LTC insurance tax closely and is evaluating its own version. The state’s progressive stance on social programs suggests a strong potential for legislation.
Utah
Utah is reviewing long-term care tax programs as part of a broader fiscal policy assessment. Lawmakers are in the early stages of evaluating models from other states.
Important Considerations Before Your State Acts
Limited Time to Opt Out
Some states may offer a one-time window to opt out by purchasing private LTC insurance. Washington gave just a few months which is not enough time for many to get approved. Approval can take 6–8 weeks or longer depending on your health.
No Cap on Taxes
In Washington, high earners pay more, there’s no income cap. If your state adopts a similar model, the more you earn, the more you pay.
Very Low State Benefits
Washington offers just $36,500, less than the cost of one year of care. Other states are reviewing similar caps. Without private insurance, you may be forced to pay for a benefit that won’t fully protect you.
Younger Workers: Act Early to Save More
Most people begin long-term care planning in their 50s. But with state tax laws looming, it may be smart to act sooner, especially if you’re in your 30s or 40s.
✅ Younger workers pay lower premiums
✅ You can lock in your current health
✅ Hybrid LTC policies provide long-term care and life insurance protection
✅ 10-Pay and single-pay options eliminate future premium increases
✅ A quality plan provides real benefits, not just a tax avoidance tool
What Is a Tax-Qualified LTC Insurance Policy?
To qualify for a payroll tax exemption, you must purchase a tax-qualified long-term care policy as defined under Section 7702(b) of the U.S. Code.
- Policies must cover 2 or more ADLs or severe cognitive impairment
- Benefits must be paid tax-free
- Most hybrid LTC policies do qualify
Avoid limited employer-sponsored plans unless your health disqualifies you from better options. Group plans often lack flexibility and may not meet exemption standards.
Will There Be a Federal LTC Payroll Tax?
While some policymakers have proposed creating a national long-term care funding program, no federal legislation has advanced. Discussions about expanding tax incentives for private LTC insurance have circulated in recent years, but Congress has not taken meaningful action. For now, long-term care policy decisions remain in the hands of individual states.
Start Your Long-Term Care Planning Today
- The risk of needing long-term care is real and the states can’t afford to cover everyone
- Don’t wait until your state gives you just weeks to act like Washington did
- Premiums are lowest today based on your current age and health
- You may lose eligibility if your health changes
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Last updated: March 02, 2025
Written by: Craig Matesky, President, ACACIA Insurance
Reviewed by: Mike Berger, National Sales Manager