How Much Does LTC Payroll Tax Cost Employers - Budget Impact Guide

What LTC Payroll Taxes Actually Cost Your Organization

State long-term care payroll taxes are no longer a single-state curiosity. Washington's WA Cares Fund has been collecting since 2023, and California, New York, and several other states are advancing their own mandates. For employers, the budget question is straightforward: how much will this cost per employee, per year, and in total across your workforce?

The answer depends on where your employees work, how much they earn, and whether you have positioned your benefits strategy to reduce or eliminate the exposure. This guide breaks down the real numbers.

For a broader look at the LTC mandate landscape and how employers are responding, the long-term care insurance employer hub covers the full picture.

Washington's WA Cares Tax: The Baseline

Washington's WA Cares Fund charges employees 0.58% of gross wages. There is no wage cap, no employer match, and no ceiling on the contribution. The tax applies to every dollar of W-2 compensation, including bonuses, commissions, and overtime.

For a single employee earning $85,000 per year, the annual tax is $493. For an employee earning $150,000, it is $870. For an executive earning $300,000, the tax reaches $1,740 per year.

While the tax is technically an employee-side deduction, employers bear the administrative burden of collection, remittance, and compliance. And in practice, many organizations absorb part or all of the cost through salary adjustments or supplemental benefits to offset the impact on take-home pay.

The benefit employees receive in return is modest: a $36,500 lifetime maximum (adjusted for inflation), usable only in Washington, and only after meeting vesting and eligibility requirements.

Projected Rates in California and New York

California and New York are both developing LTC payroll tax programs. While final rates are not yet locked, the policy proposals and actuarial studies provide reasonable projections.

California has explored rates in the range of 0.5% to 1.0% of wages. Some proposals split the cost between employer and employee, which would create a direct employer line item rather than a pass-through deduction. Given California's high average wages, even a 0.5% rate generates substantial per-employee costs.

New York is considering a program modeled loosely on WA Cares but with potentially higher contribution rates to fund a more generous benefit. Proposed rates have ranged from 0.5% to 0.75% of wages. New York's program may also include employer-side contributions. Employers with New York-based employees should be tracking the New York LTC tax and opt-out landscape as legislation progresses.

Other states with active LTC payroll tax discussions include Minnesota, Pennsylvania, and Michigan. The trend is clear, and the direction is toward more states, not fewer.

Per-Employee Cost Tables by State and Salary Level

The following tables show annual per-employee LTC payroll tax costs at current or projected rates.

Washington (0.58% of gross wages, employee-side)

California (projected 0.75% of gross wages, split employer/employee)

New York (projected 0.60% of gross wages, employee-side)

Note: California and New York rates are projections based on published proposals and may change before enactment. Washington rates are current as of 2026.

Total Organizational Cost by Company Size

To understand budget impact, multiply per-employee costs by headcount. The tables below use Washington's current 0.58% rate and an average salary of $85,000.

100-Employee Organization

• Annual payroll tax cost: ~$49,300
• 5-year cumulative cost (3% wage growth): ~$262,000
• 10-year cumulative cost: ~$565,000

500-Employee Organization

• Annual payroll tax cost: ~$246,500
• 5-year cumulative cost (3% wage growth): ~$1,310,000
• 10-year cumulative cost: ~$2,820,000

1,000-Employee Organization

• Annual payroll tax cost: ~$493,000
• 5-year cumulative cost (3% wage growth): ~$2,620,000
• 10-year cumulative cost: ~$5,640,000

These figures assume all employees are subject to the tax (no exemptions) and include compounding from annual wage growth. For organizations with above-average salaries, such as those in technology, finance, or healthcare, the actual totals will be higher.

For multi-state employers managing LTC payroll taxes across Washington, California, and New York simultaneously, the combined exposure can reach seven figures annually even for mid-size companies.

How Private Group LTC Premiums Compare

The comparison that matters most for budget planning is how payroll tax costs stack up against private group LTC insurance premiums.

Group LTC premiums vary by plan design, demographics, and benefit levels. For a workforce with an average age in the mid-30s to low-40s, typical ranges are:

• Voluntary (employee-paid) plan: $40-$80/employee/month. Employer cost is administrative only.
• Employer-contributed plan: $50-$120/employee/month depending on benefit level and plan structure.
• 10-pay plan: Higher annual premiums ($60-$120/employee/month) but payments end after 10 years. Coverage continues permanently.

For the 500-employee organization at $85,000 average salary, here is the comparison:

The 10-pay plan costs more per year during the payment period but reaches a hard stop. The payroll tax never stops growing. By year 13-14 in this model, the cumulative payroll tax cost exceeds the 10-pay total, and the gap widens every year after that.

The comparison of employer LTC benefits vs. state payroll taxes covers the strategic and retention dimensions of this decision beyond pure cost.

Hidden Costs That Do Not Appear in the Rate

The headline tax rate understates the true cost of compliance. Employers also absorb:

• Payroll system configuration: Setting up withholding, managing exemptions, and handling state-specific rules across multiple jurisdictions.
• Employee communication: Explaining the tax, fielding questions during open enrollment, and managing frustration from employees who see it as a pay cut with no clear return.
• Exemption administration: Tracking which employees have approved exemptions, verifying documentation, and managing ongoing compliance for employees who move between states.
• Ongoing legislative monitoring: States routinely adjust rates, eligibility rules, and opt-out windows. Keeping current requires dedicated attention from HR and benefits teams.
• Opportunity cost: Every dollar paid in payroll tax delivers a capped state benefit. The same dollar directed toward private coverage buys portable, more comprehensive protection that employees actually value.

Turning Cost Data Into a Benefits Decision

The numbers in this guide are a starting point, not a final answer. Your actual costs depend on your workforce distribution, compensation levels, growth plans, and benefits philosophy. But the directional conclusion is consistent across organization sizes: uncapped payroll taxes that grow with wages create open-ended budget exposure, while private coverage options offer more predictable costs and better employee outcomes. Calculate what a group LTC benefit would cost instead to see the comparison for your workforce.

To see what these numbers look like for your specific workforce, request a personalized LTC implementation briefing from Hollowtree.