Ask Alison CALIFORNIA WILL ELIMINATE THE STATE DISABILITY WAGE CAP IN 2024 By Alison McCallum, EPIC Insurance Brokers and Consultants Starting in 2024, the wage cap for California State Disability Insurance (SDI) payroll deductions will be eliminated. Eliminating the wage cap will result in higher taxes and payroll deductions for individuals earning greater than $153,164 (the 2023 wage cap) per year. Background Starting in January 2024, as part of California Senate Bill 951 (SB 951), all wages earned will be subject to state disability payroll deductions. This new measure is intended to help pay for California state-mandated disability insurance, which will increase the average weekly wage replacement to between 63% and 90% (varying on an individual’s average weekly wage) starting on Jan. 1, 2025. To fund the increased benefit amount, the state is removing the wage cap on contributions to the state insurance disability fund effective Jan. 1, 2024. With the California SDI wage ceiling eliminated, highearning employees ($153,164 for 2023) will face higher payroll taxes. To mitigate the increased tax impact, employers have the option to offer voluntary disability insurance (VDI) to replace state disability insurance. For certain employee populations, a VDI plan can be less expensive than the state plan allowing employers to pass on lower tax contribution rates and/or wage ceilings (subject to approval). Employees not impacted by SB 951 will also see the value of a lower contribution percentage, increased benefits and seamless administrative integration. The table below shows the payroll tax impact on individuals earning greater than $153,164 next year. California State Disability Insurance The California SDI program provides short-term Disability Insurance (DI) and Paid Family Leave (PFL) wage replacement benefits to eligible workers who need time off work. Employers with employees working in California may participate in the State plan or apply for approval to provide a voluntary plan to employees. Employees may be eligible for SDI if they are unable to work due to a non-work-related illness or injury, pregnancy or childbirth. To be eligible, individuals must be employed or actively looking for work at the time the disability begins and have earned at least $300 from which disability insurance deductions were withheld during the base period. Benefits for the State plan are funded through employee payroll deductions at a rate of 0.9% in 2023. The taxable wage limit in 2023 is $153,164 with a maximum annual withholding for an employee being $1,378.48. Starting in 2024, the taxable wage limit maximum cap for payroll deductions will be Employee Earnings $100,000 $200,000 $300,000 $400,000 2023 Contributions $900 $1,378 $1,378 $1,378 2024 Contributions* $900 $1,800 $2,700 $3,600 Difference $0 $422 $1,322 $2,222 *Assuming the contribution percentage remains 0.9% 25 California New Car Dealer Quarterly
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