California State Disability Insurance Tax
LAST UPDATED: June 11, 2022
If you're a business owner in California, it's important to know about the state disability insurance tax. SDI is a payroll tax that provides benefits to employees who are unable to work due to illness or injury. In this blog post, we'll discuss what SDI is, who has to pay it, and how to file for reimbursement. We'll also provide tips on how to reduce your SDI tax liability. Stay tuned!
What is SDI tax?
It was Benjamin Franklin who said that tax was one of life's certainties. And while we may not like paying taxes, they are a necessary part of our lives. In the instance of SDI Tax, this payroll tax goes towards providing benefits to employees who are unable to work due to illness or injury. So, rather than viewing it as yet another onerous tax, SDI should be seen as a vital safety net for workers across the state of California.
SDI is a state-mandated insurance program, and all employers in California are required to pay into it.
This insurance provides short-term partial wage replacement for workers who are unable to work due to non-work-related injuries or illnesses. SDI is not the same as workers' compensation, which covers work-related injuries and illnesses. SDI tax is regulated on a state level, meaning that each state has its own rules and regulations regarding this insurance.
A state disability insurance program is a vital part of ensuring that workers have some income protection in the event of an illness or injury. While the federal government provides some disability benefits through Social Security, these benefits are very limited and do not come close to replacing a worker's lost wages. State disability insurance programs help to fill this gap, providing partial wage replacement for workers who are unable to work due to a non-work-related illness or injury. Currently, five states require employers to offer state disability insurance coverage to their employees: California, New York, New Jersey, Rhode Island, and Hawaii. Hopefully, more states will see the value of these programs and choose to offer them in the future.
This level of insurance is vital for ensuring that workers can maintain their standard of living during periods of illness or injury. Moreover, it helps to protect businesses from the financial burden of lost productivity due to employee absences.
How does California State Disability Insurance (CA SDI) Tax work?
The State Disability Insurance (SDI) program is a vital part of California's social safety net. The program provides temporary disability benefits to eligible workers who are unable to work due to a non-work-related illness or injury. SDI tax withholding is mandatory for all employers in California, and the money collected is used to fund the program. The Employment Development Department (EDD) is responsible for overseeing the SDI program and administering benefits to eligible workers. If your employees work in California, you must remit their SDI tax withholdings to the EDD. By doing so, you help ensure that Californians have access to this important benefits program.
In technical terms, the California SDI tax rate is 1.1 percent of SDI taxable wages per employee per year. Eligible employees wages, also called the taxable wage base, is currently set at $145,600.
Who has to pay SDI tax?
SDI contributions are deducted from employees' gross pay. In contrast to other deductions, such as Social Security and Workers’ Compensation, SDI is entirely funded by employees’ wages, with no contribution from the employer. Deductions are typically taken out of employee's weekly wages.
SDI tax is imposed on employees in California. This includes employees of private businesses, non-profit organizations, and government agencies. If you have employees who work in California, you are required to withhold SDI tax from their wages and remit it to the state.
How SDI is withheld
Most employees' paychecks have several automatic deductions for various state and federal taxes, SDI being one of them. It is inherent upon the employer to withhold the SDI tax from employee paychecks and send in the corresponding amount to the state.
The SDI tax is calculated as a percentage of an employee's wages, so it will vary from person to person based on their earnings.
Employees can also contribute to SDI or voluntary disability plans, which speeds up the acquisition of credits and makes them more likely to qualify for short-term disability sooner than they would otherwise be. If they choose, employees can contribute more than the minimum amount to unemployment insurance and other worker protection programs. Not only does this help safeguard them in case they become unemployed, but it also allows them to access benefits faster if they need to.
As can be seen, the obligation is on the employer to have a robust and adaptive payroll system in place that can ensure SDI tax is withheld from employee paychecks correctly and in a timely manner.
What small businesses need to do to ensure SDI tax compliance
If you are a small business owner in California, it is important to make sure that you comply with SDI tax laws. The EDD can impose heavy fines on businesses that fail to withhold SDI tax from employee paychecks or remit the taxes in a timely manner.
To ensure compliance, you should:
- Use a payroll service that can withhold SDI tax from employee paychecks and remit it to the state on your behalf.
- Keep accurate records of employee wages and SDI tax withholdings.
- Make sure that you file all required SDI tax forms in a timely manner.
By following these simple steps, you can help ensure that your business is SDI tax compliant.
This where we come in At Zeffry, we understand the challenges that small businesses face when it comes to payroll and compliance. That's why we've designed our software to be as user-friendly and intuitive as possible. With Zeffry, you can rest assured that your SDI tax withholdings are being handled correctly and on time.
We believe that running your business should be your main focus, which is why we offer a payroll solution that is designed by specialists to be accurate and fast. With our service, your payroll tax will be automatically paid upon submission of your employee hours and compensation, and we offer a range of benefits and special payments, such as sick pay, PTO, bonuses, 401K, and of course CA SDI Tax. With Zeffry, you can focus on what you do best and leave the payroll to us.
Zeffry is the leading provider of payroll software for small businesses in California. We make it easy for businesses to comply with SDI tax withholding requirements. Contact us today to learn more about how we can help your business stay compliant with all payroll tax laws.