The change will increase SDI contributions and thus boost the tax rate for those making above $68,350
A California law that aims to provide more generous short-term disability and family leave benefits will take effect Jan. 1, increasing taxes for middle-class families and high-income earners.
Senate Bill 951, passed in 2022, removed the earnings limit and maximum contribution for the state’s disability insurance tax—better known as SDI withholdings—starting in 2024 to fund expanded benefit payouts set to begin in 2025.
SDI taxes—determined annually by the Legislature and the state’s Economic Development Department—were previously capped with 2023 maximum contributions of around $1,400, and those earning more than $153,000 were exempt from paying the tax on the higher earnings.
The change will increase contributions by taxing all wages 1.1 percent, thus boosting the tax rate from 9.3 to 10.4 percent for those making between $68,350 and $349,137, and up to 14.4 percent for the highest earners making more than $1 million a year.
A spokesperson for the economic development department confirmed Dec. 27 to The Epoch Times that only those making more than the prior cap will experience an increase in their SDI withholding rates.
Even with the changes, the department said expenditures would outpace revenues in coming years.
“While removing the taxable wage ceiling would initially result in a higher … balance, additional contributions from higher-income workers would not offset the additional benefit payments over time,” the development department said in legislative analyses published in 2022.
Additional increases for all taxpayers of between 0.1 and 0.2 percent are scheduled annually for the years 2027 through 2030, according to the economic development department.
One lawmaker said the tax hikes—those to take effect now and in the future—will negatively impact families across the state.
“A tax increase, no matter how minor, still means less money to pay for rent, utilities, mortgage payments, groceries, and other necessities,” State Senator Brian Dahle (R-Bieber) told The Epoch Times by email Dec. 28. “Policymakers should be more conscious of family budgets given the past few years which brought widespread economic pain and disruption to many of California’s families.”
