California’s SDI (CASDI) is an employee-paid payroll tax that funds State Disability Insurance and Paid Family Leave benefits. In 2024, the legislature removed the taxable wage cap, so the tax now applies to all SDI‑subject wages for the year.

For 2024, the EDD Payroll Tax Rates notice set the SDI withholding rate at 1.1%. It applies to each paycheck’s SDI‑subject wages with no maximum contribution. Annual rates are set by EDD based on the DI Fund’s health.

Overview

CASDI is the California SDI tax you see on paychecks. It is withheld from employees to finance Disability Insurance (DI) and Paid Family Leave (PFL) benefits administered by the EDD.

Employers are responsible for setting up withholding, remitting contributions, and reporting SDI wages/contributions each quarter alongside UI, ETT, and PIT. In plain terms: employers withhold the current-year SDI rate from each employee’s SDI‑subject wages, and those contributions fund wage replacement if the employee has a qualifying disability or family leave event.

SDI is part of California’s broader payroll tax system. UI and ETT are employer‑paid, and SDI and PIT are employee‑paid via withholding.

For 2024, EDD set the SDI rate at 1.1%. Due to SB 951, the taxable wage limit was eliminated, so high earners now contribute throughout the year. You’ll calculate SDI per check, confirm subject wages (see “SDI wages: what’s subject vs. exempt”), and reconcile quarterly with EDD returns.

What changed in 2024 under SB 951 (no wage cap)

Beginning January 1, 2024, SB 951 permanently removed the SDI taxable wage cap. SDI is now withheld on all SDI‑subject wages with no maximum contribution.

This change primarily affects higher earners and anyone who previously hit the cap early in the year. SDI now continues to withhold through December.

The EDD’s 2024 rate is 1.1%. With no cap, the annual contribution scales with pay.

Here’s what that looks like in practice. An employee earning $200,000 pays about $2,200 in SDI for the year. At $500,000 it’s about $5,500, and at $1,000,000 about $11,000, assuming all wages are SDI‑subject.

For employees under prior caps, this is a straightforward increase in the SDI line on their paystubs after they would’ve previously stopped contributing. For payroll teams, it simplifies withholding (no year‑to‑date cap checks) but amplifies the importance of subject‑wage configuration.

If you need the current rate or statutory basis, see the linked EDD Payroll Tax Rates and SB 951.

How California SDI withholding works on a paycheck

SDI withholding is mechanical. Identify SDI‑subject wages for the pay period, multiply by the current-year rate, and withhold that amount. There’s no wage cap after 2023.

Subject wages are typically cash compensation such as regular pay, overtime, bonuses, commissions, and many taxable fringe amounts. They are reduced by certain pre‑tax deductions like Section 125 cafeteria plan amounts.

For 2024, the arithmetic is simply Pay‑Period SDI‑Subject Wages × 1.1%.

For supplemental wages (bonuses, commissions, equity income), California does not use a special SDI “flat rate” beyond the annual SDI rate. It’s the same percentage as regular pay.

Because there’s no cap, SDI applies equally in January and December and to employees with multiple employers. To verify which earnings and deductions count, compare your earnings codes to EDD’s “Subject Wages” guidance and test a few sample checks (see calculation examples next).

Calculation examples: salary, hourly, bonus/commission, RSU sell-to-cover, mid-year start

These examples assume 2024’s 1.1% SDI rate and no wage cap.

If you have Section 125 pre‑tax deductions, subtract them before applying 1.1% to get the correct SDI withholding. For compensation edge cases like fringe benefits, see “SDI wages: what’s subject vs. exempt.”

SDI wages: what’s subject vs. exempt

Most cash compensation is subject to SDI. Certain pre‑tax deductions and specific categories of family or student employment are not.

The EDD’s “Subject Wages” rules closely track UI/ETT/SDI coverage. They differ in places from PIT rules, so rely on EDD’s matrix when configuring your payroll codes and deductions.

In general, regular pay, overtime, shift differential, bonuses, commissions, and equity compensation that’s included in W‑2 wages are SDI‑subject. Many Section 125 cafeteria plan deductions (e.g., pre‑tax medical premiums) reduce SDI‑subject wages.

Some fringe benefits and reimbursements may be excluded. There are special rules for items like sick pay paid by third‑party insurers.

The safest approach is to align your payroll system’s earning and deduction codes to the EDD “Subject Wages” chart. Test SDI calculations on representative checks.

Multistate and remote employees: when California SDI applies

California SDI coverage generally follows the same “localization of work” tests used for unemployment insurance. You determine a single state for coverage based on where the work is localized, then by base of operations, direction and control, and residence.

This means a worker typically has SDI coverage in only one state at a time. For California employers with remote staff, the facts of where and how the work is performed matter more than the employer’s location.

When in doubt, perform the test in order and document your determination per the EDD Employer’s Guide (DE 44).

The tests, in order of priority, are: (1) localization (the state where the work is mostly performed), (2) base of operations (the fixed place from which the employee works), (3) direction and control (the state from which the employer exercises control of the employee), and (4) residence (the employee’s state of residence if the other tests don’t decide coverage).

If the work is fully outside California and not incidental to California, you’ll usually withhold the other state’s contributions (or none if that state has no SDI). For hybrid or traveling roles, walk through the tests carefully and align SDI coverage with your UI coverage decision.

Coverage tests and common remote work scenarios

Consider these practical scenarios that often come up with distributed teams. A California employer hires a fully remote employee in Oregon who performs all services in Oregon. Because the work is localized in Oregon and not incidental to California, the worker typically is not covered by CASDI.

An out‑of‑state employer hires a California resident who works primarily from a home office in Los Angeles. Because the work is localized in California, CASDI applies even if payroll is run from another state.

For employees who split time between California and another state, document your findings under the four tests. If California is the base of operations or the location of most services, CASDI generally applies.

Exempt workers and special cases

Not everyone is covered by CASDI. Some classes of employment are exempt by statute, and payroll should be configured to avoid miswithholding.

Common exemptions include certain public agency employees whose employers do not participate in SDI, specific student assistants employed by schools, some family employment (for example, a minor child employed by a parent), and railroad employees covered under federal railroad laws.

Employers should confirm exemptions before first paycheck. Set the employee’s SDI status correctly in payroll, and keep supporting documentation with your tax records.

If you discover that SDI was withheld from an exempt worker, you must correct your EDD returns and the employee’s W‑2 (see “Refunds and corrections”).

Voluntary Plans (VPDI) vs CASDI: costs, risks, and approval requirements

Large employers can replace the state SDI program with an employer‑sponsored Voluntary Plan (VPDI) if they meet strict EDD approval standards. Requirements include at least equal benefits, equal or lower employee costs, and adequate security (bonding/trust).

The trade‑offs are real. VPDI can customize benefits and potentially lower costs, but sponsors assume administrative complexity, claims handling, compliance reporting, and funding risk. Employees generally retain rights to equitable benefits, to transfer when eligible, and to be charged no more than they would have paid into CASDI.

Before pursuing VPDI, quantify the total cost of plan administration, bonding, and claims volatility. Ensure you can deliver eligibility, adjudication, appeals, and regulatory reporting at EDD’s standard.

If you operate in multiple states, assess whether VPDI will coordinate smoothly with other state paid leave programs and with your short‑term disability insurance. Your payroll must also distinguish VPDI from CASDI for wage reporting and W‑2 Box 14 labeling.

Approval checklist, bonding, and ongoing administration

To secure and maintain VPDI approval, align with EDD’s program rules and be prepared to run a disability program at scale.

Disability Insurance Elective Coverage (DIEC) for self‑employed

Self‑employed Californians (sole proprietors, partners, certain LLC members, and independent contractors) can opt into SDI through the DIEC program to gain DI/PFL protection. Enrollment is voluntary, contributions are based on reported net earnings subject to program rules, and participation typically requires a minimum commitment period with quarterly premiums and waiting periods that mirror aspects of CASDI benefits.

If you don’t have employer coverage, DIEC can provide crucial income replacement during disability or family leave.

Eligibility and contribution mechanics differ from standard payroll withholding, so read the EDD program details and run a budget comparing expected premiums to potential benefits. Coverage begins only after EDD approves your enrollment and you’ve met the program’s effective date and waiting period requirements.

Keep careful records of earnings and timely premium payments to preserve coverage.

How to enroll and estimate contributions/benefits

The enrollment workflow is straightforward, but timing matters for when coverage begins.

Coordination with PFL, FMLA/CFRA, employer STD/LTD, and workers’ comp

SDI and PFL replace a portion of lost wages, while FMLA and CFRA protect your job. Benefits and job protection are separate.

You can receive DI when a non‑work‑related illness or injury prevents you from working. You can receive PFL for bonding or caregiving, typically coordinated with FMLA/CFRA leave if you’re eligible. FMLA/CFRA themselves don’t pay wages.

Employer short‑term disability (STD/LTD) and workers’ compensation may interact with SDI/PFL. Plans often include offset rules to prevent “double dipping” or to top up to a target percentage.

For payroll and HR, establish a clear leave‑coordination policy. Determine which benefits pay first, how to integrate accrued PTO, how employer‑paid benefits affect SDI/PFL, and how to manage job protection and benefits continuation.

Ensure communications to employees explain claim filing with EDD, employer plan offsets, and any documentation required to align leave dates with benefit dates.

Refunds and corrections: over‑withholding, DE 9/DE 9C, and W‑2 fixes

With the 2024 removal of the wage cap, excess SDI withholding due to multiple employers is no longer a routine issue. Over‑withholding now typically stems from configuration errors (e.g., withholding from exempt wages) or misapplied VPDI/CASDI.

Employees normally request a correction from the employer first. Employers correct via amended EDD returns (DE 9/DE 9C) and W‑2c if needed. Timely corrections help avoid employee tax filing problems and reconcile your EDD account to your payroll records.

On the employer side, audit quarterly totals against payroll registers. SDI subject wages and contributions per DE 9/DE 9C should tie to your general ledger and W‑2 Box 14 totals.

If you discover errors, file amended DE 9/DE 9C via EDD e‑Services, refund or collect employee SDI as appropriate, and issue a W‑2c if the year has closed. Employees should retain paystubs and W‑2/W‑2c to support any personal tax adjustments.

Employee path vs employer path: steps and timelines

If SDI was withheld incorrectly, start with the pathway that matches your role.

W‑2 reporting and tax treatment: Box 14 CASDI/VPDI, deductibility, and SALT cap

On Form W‑2, report employee SDI withheld in Box 14 using “CASDI” (or “VPDI” for voluntary plan contributions). Remember that SDI withholding does not reduce federal Box 1 wages.

For federal income tax, CASDI is treated as a state tax you paid. If you itemize deductions, you can generally include CASDI/VPDI in “state and local taxes” subject to the $10,000 SALT cap for most filers.

For California income tax, SDI is not deductible separately since California conforms to federal itemizing and has its own PIT.

Practically, employees who don’t itemize won’t get a federal deduction for SDI. Those who do will see the deduction constrained by the SALT limit.

Employers should ensure Box 14 labels are consistent and that the total matches year‑end payroll summaries and EDD filings. If you transition to VPDI, switch the Box 14 label to “VPDI” and maintain clear employee communications.

Are SDI or PFL benefits taxable?

PFL benefits are generally taxable for federal income tax and reported to recipients. DI benefits are generally not federally taxable unless paid in lieu of UI. Neither DI nor PFL benefits are taxable by California.

Employees can often request federal withholding from PFL if they prefer to avoid a balance due at tax time. Keep benefit statements and any 1099‑G/other forms from EDD with your tax records.

Rate setting and fund solvency: how SDI rates are determined

EDD sets the SDI rate annually based on the Disability Insurance Fund’s reserve ratio and projected claims experience, within statutory parameters. The goal is to keep the fund solvent across economic cycles while maintaining benefit adequacy. The rate has historically adjusted modestly year to year.

The 2024 rate is 1.1%, and the removal of the wage cap broadens the contribution base to support expanded benefits enacted under SB 951. Employers and employees should check EDD’s annual rate notice each fall for the following year’s rate and confirm payroll configurations before the first January payroll.

If your company operates a VPDI, build rate changes into your equivalency analysis and employee contribution limits.

Payroll setup and audit checklist

Getting SDI right in payroll comes down to accurate configuration, periodic reconciliation, and clean year‑end reporting. Use this short checklist to harden your process and reduce rework.

References and current-year resources

Use these official resources to confirm current rates, subject‑wage rules, and program details.