What Wages Are Subject to California SDI?

California State Disability Insurance (CA SDI) is a mandatory, employee-funded program that offers partial wage replacement to eligible workers. It provides financial support when individuals experience a loss of wages due to a non-work-related illness or injury, pregnancy, or the need to care for a seriously ill family member or bond with a new child. CA SDI applies to most employees in California, establishing a safety net for those unable to work for these qualifying reasons.

Wages Included for CA SDI

Many types of earnings are considered subject wages for California State Disability Insurance purposes. Common forms of remuneration include regular hourly wages, salaries, and piece-rate payments.

Commissions and bonuses also fall under subject wages. Overtime pay and vacation pay are included. The reasonable cash value of non-cash compensation, such as meals and lodging provided to an employee, is also counted.

These payments are considered wages regardless of whether the employee is a casual worker, a day or contract laborer, or a part-time or temporary employee. If an employer elects to pay an employee’s share of SDI contributions without deducting it from their wages, these payments are also treated as subject wages.

Wages Excluded from CA SDI

Certain types of income or employment are excluded from CA SDI contributions. Federal government workers, for instance, are exempt from SDI. Employees of interstate railroads are not covered by the state’s SDI program.

Some domestic workers may be excluded until their employer pays a certain threshold of cash wages within a calendar quarter. Certain employees of non-profit organizations might also be exempt from SDI withholding. Self-employed individuals and independent contractors are not subject to mandatory SDI contributions unless they voluntarily elect to participate in the Disability Insurance Elective Coverage Program.

Payments for professional services performed by independent contractors, such as attorneys or physicians, are not subject to SDI withholding. Wages paid to certain family employees, like a child under 18 working for a parent, a spouse employed by a spouse, or a parent employed by their child, are also excluded. Employees covered by an approved voluntary disability insurance plan are exempt from the state’s SDI plan.

Wage Limits for CA SDI

Previously, California State Disability Insurance contributions were subject to an annual taxable wage limit. On January 1, 2024, the taxable wage cap for SDI contributions was eliminated. This means that all wages earned by an employee are now subject to SDI tax.

For example, in 2023, the maximum taxable wage base was $153,164. Since 2024, there is no such ceiling, and the SDI tax rate applies to an employee’s entire taxable wages. The SDI withholding rate was 1.1% in 2024 and is scheduled to increase to 1.2% in 2025.

Employer Responsibilities for Subject Wages

Employers in California have specific responsibilities concerning wages subject to CA SDI. They are required to withhold the appropriate SDI contributions directly from their employees’ paychecks. These withheld amounts are then remitted to the state’s Employment Development Department (EDD).

Employers must also inform their employees about their rights and responsibilities regarding SDI by posting required workplace notices. When an employee files an SDI claim, employers are legally obligated to respond to notices from the EDD, such as the “Notice to Employer of Disability Insurance Claim Filed” (DE 2503). This response involves verifying employee information within two working days.

Accurate reporting of subject wages is an important employer duty. This ensures that the wages are properly accounted for SDI purposes and contributes to the correct calculation of any potential benefits an employee may receive. Employers do not pay for the SDI benefits themselves; the program is funded solely through employee payroll deductions.