5 minute read
New York Proposes Payroll Tax to Fund Long Term Care Benefit
By Marc Glickman, FSA, CLTC
As a wave of older Americans face the real possibility of needing long term care, the New York legislature is considering once again funding a modest amount of state-provided long-term care (LTC) coverage financed through a payroll tax on most workers in the state.
There are still many questions about details on the full legislation and administration should this bill be passed. However, the nation’s fourth most populous state has taken legislative steps to explore the possibility of offering a public long term care benefit.
New York State considered this possibility with draft legislation as recently as 2022, which did not pass the legislature. This 2023 bill is very similar to the 2022 legislation with an attempt to develop an LTC payroll tax, public benefit amount, and private long term care exemption with direct references to the Washington State LTC payroll tax.
Key Takeaways of the Proposed Legislation:
LTC payroll tax similar to Washington State with a modest payroll tax yet undefined to make the program self-sustaining, but with references to the 058% of wages in the Washington LTC payroll tax.
May provide for an exemption from the obligation to pay premiums and receive benefits for individuals who have maintained private long term care insurance on an uninterrupted basis beginning no later than January first of the year in which the act takes effect.
Private long term care insurance solutions that qualify for exemption are defined by New York law. This section refers to qualified long-term care insurance contracts as defined in section 7702B of the internal revenue code.
Other NY LTC payroll tax exemptions include individuals who maintain a permanent residence outside of the state of New York, US military veteran with a service-connected disability of seventy percent or greater; a spouse or registered partner of an active-duty service member; an employee with a non-immigrant visa for temporary workers.
Other Legislation Details
An individual must "earn" the benefit by working at least ten years during their lifetime.
Premium contributions collected similar to income tax withholding for employees and income tax payments by self-employed individuals.
Premium contributions set at the lowest amount necessary to maintain the program on sound financial footing.
Important Benefit Information as Proposed
NY LTC Trust program would provide universal long term care benefits at an initial rate of $100 per day for a lifetime limit of 365 days’ worth of benefits.
To qualify for benefits, the individual then must prove that they need assistance with at least two activities of daily living.
Help Employees Start a Long Term Care Plan
We do not know yet whether this NY LTC payroll tax bill will become law and when it will become effective. However, it would be a good time to propose LTC insurance now as an employee benefit because of our experience in Washington. There may be fewer LTC insurance options in New York than in other states. As we discovered in Washington, when there is sudden demand, the supply of private insurance products may not adequately support all the demand. In Washington, many carriers pulled out of the market, there were significant underwriting delays, and the carriers pulled some of their richest LTC features and imposed minimum benefit requirements.
A Life Insurance or Long-Term Care Product That Fits Employee Needs and Budget
At BuddyIns, we recommend obtaining meaningful coverage rather than just enough to possibly qualify for a state exemption What does that mean? Meaningful coverage provides the insurance benefits that may best cover the risks.
The cost is affordable, and it is a plan that someone can financially manage over their lifetime. The most popular solutions in Washington came from not only affordable LTCi-focused coverage but also life insurance coverage with LTC riders. Younger clients who did not have their life insurance plans used the WA payroll tax as an opportunity to protect their families with affordable hybrid policies.
The ideal candidate to purchase long-term care insurance or life insurance is someone who would have pursued coverage regardless of the payroll tax. They may now decide to buy sooner than they would have because of proposed government programs and the ability to opt-out or supplement the state benefits.
Higher earners with more income and assets to protect may see the best value from purchasing a private plan. It’s also possible for employers to do an executive carve out. If a proposed payroll tax is a percentage of all wages, like in WA, a higher earner could pay more into the payroll tax than they could get in benefits.
For example, a 40-year-old employee is making $200,000 per year and expects her wages to grow 3% per year. If she retires at age 65, she will have put in a projected $42,293 over 25 years. If the lifetime maximum is similar to the Washington State benefit, it will be around $36,500 with nominal increases.
One should never purchase a long term care insurance policy solely for the purpose of opting out of a proposed payroll tax. Reach out to a long-term care specialist if you would like to begin the planning process. Even if you are not ready to purchase yet, understanding your options and meeting with an LTCi specialist will allow you to act more quickly later.
Marc Glickman, FSA, CLTC, CEO and Co-Founder of BuddyIns - a leading long-term care and hybrid insurance technology company. Marc is also an actuary and has served as the Chief Sales Officer for a major LTC insurance company. Marc can be reached at marc@buddyins.com, by phone at 8182645464, or by visiting wwwbuddyinscom/partner.
