California SDI Tax: Rate, No Wage Cap, Who Pays, Employer Duties and How to File a Claim

Workers in California are covered by the State Disability Insurance, from which a certain amount is withheld from their wages to provide benefits to those disabled at the workplace, those who have experienced pregnancy or childbirth, or parental leave. The exemption threshold for this deduction has been recently removed, making the contribution mandatory for all workers, independent of their wages.

At 1.3%, the withholding significantly reduces the wages of the state’s six-figure earners and the top-level executives. Knowing the details about payroll, eligibility, and the insurance limits in California in relation to itemizing deductions on the federal level will help understand how much of the income is going to the disability fund.

California State Disability Insurance (SDI) provides short-term wage replacement benefits to eligible workers who are unable to work due to a non-work-related illness, injury, or pregnancy.

What Is California SDI Tax?

California removed the SDI wage cap now all wages are subject to the 1.2% SDI rate. SDI is an employee-paid payroll tax that funds two California programs:

· State Disability Insurance (DI): replaces wages when you cannot work due to a non-work-related illness, injury, pregnancy, or childbirth

· Paid Family Leave (PFL): replaces wages when you take time off to bond with a new child, care for a seriously ill family member, or address a military assist need

California SDI Tax Rate, New Rules Effective January 1, 2025

Who Is Covered by California SDI?

· Most California employees are automatically covered

· Self-employed individuals can elect coverage through the Elective Coverage program

· Minimum earnings to qualify for benefits: $300 in wages during the base period

· Waiting period: 8 days (first 7 days are a non-payable waiting period; benefits begin on day 8)

SDI Benefits: How Much Will You Receive?

How to Calculate Your SDI Deduction

SDI Deduction = Total California Wages x 1.2%

Example: Employee earning $200,000 in California wages (TY2025):

· SDI = $200,000 x 1.2% = $2,400

Under the old structure (2024, with $153,164 cap): SDI = $153,164 x 1.1% = $1,685. The change to unlimited wages increased SDI costs by $715/year for this earner. For a $500,000 earner: SDI = $6,000 vs $1,685 previously, an increase of $4,315/year.

How to File a California SDI Claim

· File online through the EDD portal (SDI Online) within 49 days of disability onset

· Provide a medical certification from a licensed California health professional

· For PFL claims: certify the qualifying reason (birth, adoption, illness of family member)

· Employer notification: inform your employer before claiming PFL

Conclusion

California's SDI tax at 1.2% with no wage cap (effective 2025) represents a significant increase for high earners. Understanding the rate, the programs it funds, and how to claim benefits ensures California employees get the full value of this mandatory contribution.

When a San Francisco software firm partnered with Profitjets, several executive team members earning above $300,000 were caught off guard by lower net take-home pay caused by unlimited SDI withholding.

Profitjets conducted a complete payroll recalculation and tax modeling review, helping the company restructure performance bonuses and timing strategies. This proactive planning allowed executives to optimize tax withholdings on Schedule A within federal SALT limitations while keeping corporate payroll fully compliant with EDD requirements.

What Employers Actually Have to Do

The programme is funded by employees and administered by employers, which means the employer's exposure is procedural rather than financial, and the errors are almost always in process.

• Withhold the correct amount from each employee's wages each pay period
• Remit on the schedule that applies to your payroll size, alongside the other state payroll obligations
• Report the amounts correctly on the periodic returns and on the annual statements issued to employees
• Display the required notices and provide the required information to employees, which is a separate obligation from the withholding
• Stop withholding correctly once an employee reaches the annual limit, since over-withholding has to be corrected

The rate and the wage limit are set annually by the Employment Development Department. Payroll systems generally update themselves, and it is still worth confirming at the start of each year that the correct figures are in use.

When an Employee Makes a Claim

Most employers meet the claims side unprepared, because the withholding runs for years without anyone needing to think about it.

The claim is made by the employee to the state rather than to you, and benefits are paid by the state. The employer's role is to respond to requests for wage information promptly and accurately, since the benefit calculation depends on reported earnings, and a slow or incorrect response delays the employee's payment.

Keep in mind that the programme covers both an employee's own condition and, under the family leave element, time taken to care for a family member or bond with a new child. Those interact with other leave entitlements, and the interaction is a question of employment law as much as payroll. The Employment Development Department publishes current guidance for employers, and it is worth reading before a claim arrives rather than during one.

How SDI Sits Alongside California's Other Payroll Costs

Employers running California payroll deal with several state programmes at once, and they are frequently confused with each other because they are reported together.

• State disability insurance, withheld from employees and remitted by the employer
• Personal income tax withholding, also withheld from employees
• Unemployment insurance, funded by the employer with an experience-rated cost
• Employment training contributions, funded by the employer

Two of these are employee costs the employer merely administers and two are genuine employer costs, which matters when budgeting for a hire: only part of what appears on the state return is actually your expense.

All four are administered by the Employment Development Department and reported through the same returns, with their own deposit schedule based on payroll size. Where an employee works partly outside California, or works remotely from another state for a California employer, which state's programmes apply is a separate question with its own rules. Rates and wage bases are set annually, so confirm each at the start of the year rather than carrying the previous year's figures forward.

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Written by

Ankit Sarawagi, CPA, CA, MBA

Ankit leads the finance team at Profitjets, where he has worked with 500+ businesses across the US on bookkeeping, tax and CFO-level strategy. He writes about the habits that keep small business books accurate all year. Connect on LinkedIn