Long-term care payroll taxes represent a new category of employer obligation that is gaining momentum across the United States. Washington became the first state to implement such a program in 2023, and multiple states are now studying or proposing similar legislation. This guide provides employers with a comprehensive overview of the landscape, compliance requirements, and strategic alternatives.
Why LTC Payroll Tax Legislation Is Accelerating
The aging population is driving a fundamental shift in how states approach long-term care funding. With Medicaid budgets under pressure and private LTC insurance markets contracting, state legislators are increasingly looking to payroll taxes as a sustainable funding mechanism for public LTC benefits.
Washington's WA Cares Fund has become the template for other states exploring similar programs. While early implementation challenges have provided lessons, the overall direction is clear: more states will adopt LTC payroll taxes in the coming years, and employers need to prepare for a multi-state compliance environment.
States With Active or Proposed LTC Legislation
| State | Status | Employee Rate | Effective Date | Opt-Out Available |
|---|---|---|---|---|
| Washington | Active | 0.58% | July 2023 | Yes |
| California | Proposed | TBD | 2027 (est.) | TBD |
| New York | Proposed | 0.50% | 2026 (est.) | Yes |
| Minnesota | Under Study | TBD | TBD | TBD |
| Pennsylvania | Under Study | TBD | TBD | TBD |
What LTC Payroll Tax Means for Employers Operationally
For employers, LTC payroll taxes introduce new compliance requirements that go beyond simple withholding. Organizations must update payroll systems, communicate changes to employees, manage opt-out documentation, and stay current with evolving state regulations.
Multi-state employers face particular complexity, as each state's program will have different rates, effective dates, and exemption criteria. Building internal processes now -- before additional states go live -- is critical for maintaining compliance at scale.
Hollowtree works with HR and benefits teams to establish scalable compliance frameworks that account for current and anticipated LTC payroll tax obligations across all operating states.
The Strategic Choice Employers Are Facing
Every employer in an affected state faces a fundamental decision: participate in the state program or offer qualifying private coverage that enables employee opt-out. This decision has implications for employee satisfaction, total compensation strategy, and long-term benefits positioning.
Private LTC coverage can offer superior benefits, broader coverage, and portability advantages that state programs typically cannot match. For employers competing for talent, offering a private alternative signals investment in employee financial security.
“Employers who act before legislation takes effect gain a strategic advantage -- they can offer opt-out coverage to employees while establishing a benefits framework that scales across states.”
LTC Payroll Tax by State -- Full Coverage
Washington
The WA Cares Fund is the first state-mandated LTC program. Employers must manage payroll deductions and exemption verification.
Read the employer guide →California
California's proposed LTC legislation would create the largest state-run long-term care program in the country.
Read the employer guide →New York
New York is considering an employee-funded LTC payroll tax with opt-out provisions for qualifying private coverage.
Read the employer guide →Minnesota
Minnesota's task force is evaluating multiple models for a state LTC benefit program with employer involvement.
Read the employer guide →Pennsylvania
Pennsylvania legislators have introduced exploratory bills to study LTC payroll tax feasibility and employer impact.
Read the employer guide →Illinois
Illinois is in early study phases evaluating the fiscal impact of a state-level LTC payroll tax on employers.
Read the employer guide →Colorado
Colorado's proposed framework would allow employer opt-out with qualifying private long-term care coverage.
Read the employer guide →Oregon
Oregon is reviewing neighboring Washington's program outcomes to inform its own LTC policy development.
Read the employer guide →How Hollowtree Helps
Hollowtree provides end-to-end support for employers navigating LTC payroll tax compliance. From initial assessment through ongoing administration, our team ensures your organization stays ahead of legislative changes.
We help evaluate private LTC alternatives, manage opt-out programs, and build scalable compliance processes that work across multiple states and regulatory frameworks.
Ready to Get Ahead of LTC Legislation?
Schedule a briefing with our team to understand your options and build a proactive compliance strategy.
Frequently Asked Questions
A state-mandated payroll deduction that funds a public long-term care benefit program. Employers are responsible for withholding and remitting the tax, similar to other payroll obligations.
Next Steps for Employers
Whether your state has already enacted LTC payroll tax legislation or is still in the proposal phase, the time to prepare is now. Employers who establish compliance frameworks early avoid costly last-minute implementations and can offer employees better alternatives.
Contact Hollowtree for a personalized assessment of your LTC payroll tax exposure and a roadmap for compliance across your operating states.
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