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California State Disability Insurance: How the 2024 Wage Ceiling Removal Impacts Your Organization

2024 marks a significant change in California’s State Disability Insurance (SDI) program that will directly impact both employers and employees: Beginning this year, the wage ceiling that previously capped the amount of income subject to SDI taxation is no longer in effect.

The California SDI program, administered by the Employment Development Department (EDD), provides temporary financial assistance to eligible workers who need time off work. SDI provides short-term disability and paid family leave wage replacement and is funded through a 0.9% tax withholding on employee wages in CA (check your paycheck). Previously, wages were taxed up to a maximum of $153,164 which equated to a maximum withholding of $1,378.48 per year ($153,164 x 0.9%).

All California wages are now subject to a 0.9% STI tax withholding.

As part of CA SB 951, this wage ceiling has now been eliminated, and all California wages are subject to the 0.9% tax. Employees earning less than $153,164 will not see a change in their SDI tax withholding, but employees earning more than $153,164 will see a greater amount withheld.

Here are a few examples:

California Wages SDI Taxes Withheld: 2023 SDI Taxes Withheld: 2024
$75,000 $675 ($75,000*0.9%) $675 ($75,000*0.9%)
$200,000 $1,378.48 ($153,164*0.9%) $1,800 ($200,000*0.9%)
$500,000 $1,378.48 ($153,164*0.9%) $4,500 ($500,000*0.9%)

Good news – starting in 2025 many workers are anticipated to receive higher benefits from SDI.
While exact figures are not yet available, EDD has stated the intention is to provide those who earn 70% or less than the state’s average wage with 90% of their regular wages, an increase from 70% which low-wage earners are eligible to receive under the current program. Workers earning more than 70% of the state average should expect to receive up to 70% of average weekly wage starting in 2025.

While maximum weekly benefits are not yet finalized for 2024 or 2025, those who will pay higher taxes due to the wage ceiling removal are likely to see very little increase to their maximum weekly benefit from SDI in the next two years. It is expected that the increase to the maximum weekly benefits will be no more than the normal inflation adjustments that typically come each year.

Employers may want to proactively plan ahead in advance of the change:

  • Employers will need to ensure their payroll system is updated for 2024 SDI deductions
  • HR departments may want to proactively communicate these changes to employees
  • Provide employees with resources and contacts for inquiries regarding the updated program

As an alternative to participating in CA SDI, employers can apply to the EDD for approval of a state-approved voluntary short-term disability and family leave plan. The bar is high to administer an alternative option – in order to comply, companies must meet the following requirements:

  • Cannot cost employees more than SDI
  • Provide all the same benefits as SDI plus at least one that is better
  • Must be updated to match any increase in benefits SDI implements
  • Obtain written approval from the majority of employees eligible for coverage

There are a number of employer considerations for companies interested voluntary STI and family leave plans. You can learn more by reading this post on the hidden value of ancillary plans.