What California disability insurance costs you in taxes
California State Disability Insurance (SDI) is funded by a small payroll tax that comes out of your paycheck. In 2024, the tax rate is 1.0% of your wages, up to a maximum of $1,656.63 per year. Your employer does not pay this tax — it comes directly from your gross pay before taxes are calculated.
This means if you earn $50,000 a year in California, you will pay $500 into the SDI fund (1.0% of $50,000). If you earn $165,663 or more, you pay the maximum amount regardless of how much higher your income goes. The state sets the rate and the wage base each year, so the exact amount you pay may change annually.
The money you pay into SDI is separate from federal income tax, Social Security tax, and Medicare tax. It appears as a line item on your pay stub labeled "SDI" or "State Disability Insurance" or sometimes "CASDI."
Key Takeaways
- California SDI is funded by a 1.0% payroll tax that comes out of your paycheck, with a yearly maximum of $1,656.63.
- You pay the tax, not your employer, and it is deducted from your gross wages before federal income tax is calculated.
- The tax rate and wage base change each year, so check your pay stub to see what you are currently paying.
- SDI payments are not tax-deductible on your federal income tax return, but the benefits you receive may be taxable depending on your total income.
- Self-employed people in California can choose to pay into SDI voluntarily, though they pay both the employee and employer portions.
How SDI tax appears on your pay stub
Your SDI deduction shows up on every paycheck as a separate line. It is calculated on your gross pay — the amount before any other deductions. If you are paid biweekly, you will see roughly $9.62 deducted per paycheck (half of the annual 1.0% rate), though the exact amount depends on your pay frequency and how your employer rounds.
Some pay stubs label it "SDI," others say "State Disability Insurance," and a few use "CASDI" or "CA DI." If you do not see this line, ask your payroll department whether California SDI is being withheld. Employers are required by law to deduct and remit this tax, so if it is missing, there may be an error.
The deduction stops once you hit the wage base cap for the year. If you earn $165,663 or more, you will stop seeing SDI deductions on paychecks after you reach that threshold. The cap resets on January 1 each year.
Whether SDI taxes are deductible on your federal return
SDI taxes paid to California are not deductible on your federal income tax return. The IRS does not allow you to reduce your federal taxable income by the amount you paid into state disability insurance. This is different from some other state taxes, and it is a common source of confusion.
You will report your federal income and pay federal tax on the full amount, even though California has already taken SDI out. Your W-2 form will show your gross wages and the SDI amount separately, but the SDI payment does not reduce your federal taxable income.
Whether SDI benefits are taxable income
If you receive benefits from California SDI, those benefits may be taxable on your federal return, depending on your total income for the year. The IRS taxes SDI benefits the same way it taxes unemployment benefits — if your combined income (including SDI) exceeds certain thresholds, a portion of the benefits becomes taxable.
For 2024, if you are single and your combined income is more than $25,000, you may have to pay federal tax on up to 85% of your SDI benefits. If you are married filing jointly, the threshold is $32,000. Combined income includes wages, interest, dividends, and the SDI benefits themselves.
When you receive SDI benefits, the state does not withhold federal income tax automatically. You can request that it does by filling out a form, but most people do not. This means you may owe federal tax on the benefits when you file your return, even if no tax was taken from the benefit payments themselves.
Self-employed people and SDI taxes
If you are self-employed in California, you do not automatically pay SDI tax. However, you can choose to pay into the program voluntarily. If you do, you pay both the employee portion (1.0%) and the employer portion (1.0%), for a total of 2.0% of your net self-employment income.
Self-employed people who want SDI coverage must register with the state and pay quarterly. The benefit is that if you become unable to work due to a non-work-related illness or injury, you can receive SDI benefits just as an employee would. Without voluntary coverage, self-employed people have no access to state disability benefits.
To enroll in voluntary SDI coverage, contact the California Employment Development Department (EDD). You can register online, by mail, or by phone. Once enrolled, you pay the tax with your quarterly estimated tax payments or when you file your annual return.
How SDI tax interacts with other payroll deductions
SDI is deducted from your gross pay, which means it is taken out before federal income tax, Social Security tax, and Medicare tax are calculated. This lowers the amount on which those other taxes are based. For example, if you earn $2,000 and pay $20 in SDI, your federal income tax is calculated on $1,980, not $2,000.
However, SDI does not reduce the amount subject to Social Security tax or Medicare tax. Those taxes are calculated on your full gross pay, including the portion that goes to SDI. This is why your Social Security and Medicare deductions appear larger than your federal income tax deduction.
If you have other pre-tax deductions like health insurance premiums or a 401(k) contribution, those are also taken out before federal income tax is calculated, but after SDI is deducted. The order matters because each deduction reduces the base for the next one.
What happens if you work in multiple states
If you work in California and also work in another state during the same year, you may pay SDI tax to both states. Each state has its own disability insurance program and its own tax rate. You do not get a credit on your federal return for paying state disability taxes to multiple states.
If you move to California mid-year and your previous state also had a state disability tax, you will have paid into both programs. You cannot combine the taxes or transfer credits between states. Each state's program is separate, and each calculates your benefits based only on wages earned in that state.
If you are unsure whether you owe SDI tax in another state, check that state's labor department website or contact the California EDD. They can tell you whether your situation requires payment to both states.
Frequently Asked Questions
Can I get a refund of SDI taxes if I never use the benefits?
No. SDI is a mandatory insurance program, not a savings account. The money you pay goes into a state fund that covers all workers who receive benefits. You do not get a refund if you never file a claim, just as you do not get a refund on car insurance if you never have an accident.
Does SDI tax count toward my Social Security credits?
No. Only Social Security tax (FICA) counts toward your Social Security record and credits. SDI is a separate California program and does not affect your federal Social Security benefits or the number of credits you earn.
What if my employer is not deducting SDI from my paycheck?
Contact your payroll department when ready. Employers are required by law to deduct and remit SDI tax. If it is not being taken out, your employer may be breaking the law, and you may owe the tax later. Ask for a corrected pay stub and documentation of the deduction.
Do I have to pay SDI tax if I am on workers' compensation?
Yes. SDI tax is deducted from your regular wages regardless of whether you are receiving workers' compensation benefits. The two programs are separate, and workers' compensation does not exempt you from SDI withholding.
Will SDI benefits reduce my unemployment benefits if I file for both?
No. SDI and unemployment insurance (UI) are separate programs. However, you cannot receive both at the same time for the same week. If you are receiving SDI benefits, you cannot also receive UI benefits for that week, and vice versa. The state will coordinate the two if you file for both.