Hey there, fellow Californian. If you saw your paycheck stub and noticed a new line item for something called the “CA LTD,” then you are not alone. There are many people who do not know about this and are trying to figure out what this new deduction is all about. It is called the California long term care tax. It is part of a massive new state program that will affect nearly every working person in the Golden State.
You can love it or hate it, but understanding it is crucial. This is not just another tiny tax. It is a foundational shift in how the state aims to address the increasing crisis of long-term care for its aging population. So, please grab a cup of coffee, and here we have broken down the California long term care payroll tax and what it means for your wallet. You can also learn how we (Eric M Hunt) can help you navigate this new tax.
What Exactly Is The California Long Term Care Tax?
The California long term care tax is the funding mechanism for the California Long-Term Care Services and Supports (LTSS) Act. This law was signed into law in 2019. This program is designed to benefit eligible individuals who need help with daily living activities (like bathing, dressing, or eating) due to a chronic illness, disability, or the simple effects of aging.
Think of it like a state-run long-term care insurance plan. Everyone pays into the system through payroll deductions. If you ever need qualified long-term care in the future, you can tap into the benefits. The state recognized that with rising costs and an aging population. Many people are financially devastated by the exorbitant cost of nursing homes or in-home care. This program aims to be a safety net.
How Does The Long Term Care Tax California Work?
The mechanics are straightforward, at least on the surface – a mandatory payroll tax on wages and self-employment income funds California’s long-term care tax.
- Tax Rate: The current tax rate is 0.58% of your gross wages. That’s 58 cents for every $100 you earn.
- Wage Cap: There is an annual cap on taxable wages. For 2024, you only pay this tax on wages up to $171,090. This means the maximum any individual will pay per year is $992.32 ($171,090 * 0.58%).
- Who Pays: Nearly all W-2 employees in California are required to participate. If you are self-employed, you can choose to opt in, but you are not automatically enrolled.
- Collection: The tax is collected by the state’s Employment Development Department (EDD), much like State Disability Insurance (SDI).
So, if you earn $70,000 a year, you have to pay about $406 annually ($70,000 * 0.0058). It is deducted automatically from your paycheck, just like Social Security and Medicare taxes.
What Benefits Does This Program Provide?
This is the critical part. You are paying into the system, so what do you get out of it? The promised benefits are designed to help cover the costs of long-term care.
Eligible individuals can receive up to $36,500 in benefits (this amount is adjusted annually for inflation). These benefits can be used for a variety of services, including:
- Modifying your home for accessibility (ramps, grab bars)
- Paying for in-home care from a licensed professional
- Covering costs at an assisted living facility
- Respite care for family caregivers
- Transportation to medical appointments
- Care coordination
It is important to view this not as a comprehensive solution covering all long-term care costs, because it will not. The average cost of a nursing home in California can exceed $100,000 per year. The state benefit is a helpful amount, but it is more of a supplemental aid rather than a full-coverage plan.
The Big Catch: Eligibility and Vesting Requirements
This is where many people have raised concerns. To be eligible for these benefits, you must meet two key criteria:
- You must need help with Activities of Daily Living (ADLs). This is a standard measure used in insurance (e.g., needing help with bathing, continence, dressing, eating, toileting, and transferring).
- You must not have moved out of California. This is the big one. If you retire and decide to move to Arizona, Nevada, or any other state, you lose your eligibility for benefits. You have paid the tax, but you can not collect. This portability issue is a significant point of contention.
Furthermore, when the program starts collecting taxes, there are no benefits for individuals with long-term care needs. You have to be paying into the system while you are healthy to qualify eventually.
The Opt-Out Option: Is It Possible?
Yes, but the window is extremely narrow and has a major condition. The only way to opt out of paying the California long term care payroll tax for life is to obtain a private long-term care insurance policy. There is a catch, of course:
- You must have an existing private Long-Term Care insurance policy in place before the state begins collecting taxes. The state has pushed the collection start date to July 2025 (though this could change, so stay updated!).
- You must apply for an exemption during a yet-to-be-announced open period, likely sometime before collections begin.
- Once you opt out of a private policy, you can never opt back into the state system.
This has led to a surge of interest in private long-term care insurance policies as people evaluate whether a private plan might better fit their needs, especially if they have plans to retire outside of California.
Why You Might Consider a Private Policy with Help from Eric M Hunt
This is where professional guidance becomes invaluable. A private policy might offer a more robust and flexible solution for many, especially higher earners or those with plans to retire elsewhere. This is a complex financial decision with long-term implications.
A company like Eric M Hunt can be an essential partner in this process.
They can help you:
- Understand the Comparison: They can break down the pros and cons of the state plan versus a private plan specific to your financial situation and life goals.
- Navigate the Market: The world of private long-term care insurance is complex. They can help you find a policy that offers better benefits, inflation protection, and portability – so your coverage follows you no matter where you live.
- Secure an Exemption: If you decide a private policy is right for you, they can ensure it meets the state’s requirements and guide you through the official exemption application process before the deadline.
Making this choice alone can be daunting. Having an expert from a firm like us (Eric M Hunt) analyze your options can provide clarity and confidence in your decision.
The Bottom Line: Is It Worth It?
The California long term care tax is a well-intentioned program to solve a real and growing problem. For lower and middle-income workers who might not otherwise have any plan for long-term care, it provides a basic, albeit limited, safety net.
However, for others, the mandatory nature of the tax, the non-portability of benefits, and the limited benefit amount make it a raw deal. It functions as a pay-in-now, hope-you-need-it-later-in-California tax.
Your takeaway should be this: Don’t be passive. This deduction will start happening, but you have a choice. You need to educate yourself, assess your personal and financial future, and decide if applying for an exemption with a private policy is your smarter path. Ignoring it means you are automatically enrolled in the state plan.
Start the conversation with your financial advisor, or contact a specialist like us (Eric M Hunt) to explore your options. The clock is ticking on the opt-out window, and making a proactive decision now could save you tens of thousands of dollars and provide far better protection down the road.
FAQ
1. When will the California long term care tax start being deducted?
The payroll deductions are scheduled to begin on July 1, 2025, though this date has been delayed before and could change.
2. Can I opt out of the California long term care tax?
Yes, but only if you secure a qualified private long-term care insurance policy and apply for an exemption during the designated period before deductions start.
3. What happens to my money if I leave California after retiring?
If you move out of state, you forfeit your eligibility to receive benefits from the program, even though you paid the taxes.
4. Is the California long term care tax deducted from all my income?
No, it is only deducted from your wages up to an annual cap of $171,090 for the 2024 tax year.
5. How much will the California long term care tax cost me per year?
The cost is 0.58% of your gross wages, capped at $992.32 per year for 2024 based on the wage limit.
