Effective January 1, 2024, the state disability insurance (SDI) tax (currently set at 1.1% for 2024) will apply to an employee’s total wages rather than being capped at a specified amount. (UIC §985) For 2023, the maximum wage base that the tax could be applied to was set at $153,164.
Elimination of the wage base essentially amounts to a 1.1% tax increase on wages above the current $153,164 wage base. However, California employers may consider participating in a voluntary plan instead of the SDI program, especially if they have a number of highly compensated employees. Also, sole shareholders are allowed to elect out of SDI and may buy disability insurance on the private market which, with the removal of the wage base cap, may now be cheaper than SDI. (See the December 2022 and April 2023 issues of Spidell’s California Taxletter® for more information.)