New SDI Withholding Rate and Limits — Ensure Your Business is Compliant

By Jamee Bollinger, CPA

February 5, 2024

GC is always working to keep you informed about new tax law updates, particularly when they affect everyone. All of us receiving a California paycheck are subject to California’s State Disability Insurance (SDI) tax, and a couple of notable changes are already in effect as of January 1, 2024: the SDI tax rate has increased to 1.1%, and the cap has been eliminated for wages subject to SDI tax.

California Senate Bill 951 introduces several amendments to California’s Unemployment Insurance Code and to State Disability payments to help increase disability benefits for California residents in need. Prior to 2024, earnings above $153,164 were not subject to withholding; thus, higher-income individuals will be subject to SDI additional withholding wages.

What Does the SDI Program Do for California Employees?

The SDI program provides short-term wage replacement benefits to eligible employees who are unable to work due to non-work-related illness, injury, pregnancy, or childbirth. The program also provides for Paid Family Leave (PFL) benefits, which allow workers to take time off to care for a seriously ill family member, bond with a new child, or participate in a qualifying event related to a family member’s military deployment.

Here are the key takeaways about the changes to SDI:

  • Effective January 1, 2024, the SDI tax rate increased from 0.9% to 1.1%.
  • The SDI tax will apply to an employee’s total wages rather than being capped at the former threshold of $153,164.
  • The 2018 SDI increased benefit percentage levels  (up from 60% to 70% of average weekly wages) have been extended through the end of 2024.
  • As of January 1, 2025, the wage replacement rates will increase to 90% for lower-wage workers.
  • Employers should ensure their payroll programs are up-to-date with these recent rate changes.

If you are the sole shareholder in your corporation, you may consider electing out of SDI and instead purchase disability insurance on the private market as a potentially more cost-effective option. However, if you choose a Voluntary Plan option, you must offer your Voluntary Plan to all of your California employees. For more information about Voluntary Plans, please visit the CA EDD’s Employer Volunteer Plans page.

Get in Touch

Grimbleby Coleman may be able to help you understand the tax implications to your business for these SDI tax increases. For guidance on adapting to these tax changes, consult your accountant or advisor. Contact us to find out more.

If you need more information on new payroll and labor law updates as well as new deadlines, see our recent article by Senior Accountant Will Morgan, 2024 Payroll & 1099 Information.