The California SDI tax is a mandatory payroll deduction that funds the state’s State Disability Insurance program, which pays partial wages to workers who temporarily can’t work for a non-job-related medical reason or a qualifying family situation. For 2026, employers withhold 1.3% of your gross wages, with no cap on the earnings subject to the tax. Employees pay the full amount; employers contribute nothing.
The 2026 Rate and Wage Base
The withholding rate for 2026 is 1.3% of gross wages.1Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values The deduction comes out of your pay before other withholdings. On a $5,000 paycheck, the SDI line is $65.
The rate has climbed in recent years: 1.1% in 2024, 1.2% in 2025, and 1.3% in 2026. Under California Unemployment Insurance Code Section 984, the EDD resets the rate each year based on the health of the disability fund, within a floor of 0.1% and a ceiling of 1.5%.2California Legislative Information. California Code UIC Division 1 Part 1 Chapter 4 Article 3 Section 984
There is no wage cap. Senate Bill 951 removed the taxable wage ceiling as of January 1, 2024, so every dollar you earn is now subject to the 1.3% deduction.1Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values Before that change, earnings above a set annual amount were exempt. Higher earners now contribute much more than they used to.
Who Pays the Tax
Most W-2 employees working in California are automatically enrolled and have SDI withheld from every paycheck. The program is employee-funded; your employer handles the withholding and remits it to the EDD, but does not add money of its own. SDI was created under Unemployment Insurance Code Section 2601 to replace part of the wages workers lose to non-work-related illness or injury, and it operates as a shared fund that any contributor can draw on if they later qualify.
Not everyone is in the system. Some government employees, workers under certain religious exemptions, and self-employed people who haven’t opted in are excluded from mandatory coverage.3California Legislative Information. California Code UIC Division 1 Part 2 Chapter 4 Section 2901 SDI also does not cover job-related injuries or illnesses; those fall under workers’ compensation, which is a separate system.4Employment Development Department. Workers’ Compensation and Disability Benefits
Self-Employed Workers
If you’re a sole proprietor, independent contractor, or business owner without an employer withholding SDI, you can buy in through Disability Insurance Elective Coverage. DIEC lets you pay premiums directly to the EDD and collect both DI and PFL benefits if you later qualify.5Employment Development Department. Disability Insurance Elective Coverage (DIEC) To be eligible, the major portion of your income has to come from your self-employment work.
Employers With a Voluntary Plan
Some employers run a private disability plan approved by the EDD, called a Voluntary Plan, in place of state SDI. If your employer uses one, your payroll deduction goes to that plan instead of to the state. A Voluntary Plan can’t cost employees more than state SDI, has to match every state benefit and improve on at least one, and needs majority approval from the employer’s eligible workers.6Employment Development Department. Become a Voluntary Plan Employer The deduction still can’t exceed the state rate, which is 1.3% for 2026.7Employment Development Department. Contribution Rates and Benefit Amounts You can always refuse the Voluntary Plan and stay on state SDI.
What Your Contributions Fund
SDI withholding supports two benefit programs that pay partial wage replacement in different situations.
Disability Insurance pays benefits when you can’t work because of a non-work-related illness, injury, pregnancy, childbirth, or surgery, including elective procedures and some substance abuse rehabilitation. Benefits can run up to 52 weeks per claim.8Employment Development Department. Disability Insurance Benefits
Paid Family Leave pays benefits when you take time off to care for a seriously ill family member or to bond with a new child by birth, adoption, or foster placement. PFL runs up to eight weeks within a 12-month period.9Employment Development Department. Paid Family Leave PFL replaces income only; it doesn’t protect your job. Job protection, if any, comes from separate laws such as the California Family Rights Act or the federal FMLA.
Both programs replace between 70% and 90% of the wages you earned in a 12-month base period roughly 5 to 18 months before your claim starts.8Employment Development Department. Disability Insurance Benefits Lower-wage workers get the 90% rate; most others get 70%. SB 951 lifted those replacement percentages from 60% and 70% as of January 1, 2025. The maximum weekly benefit for 2026 is $1,765.7Employment Development Department. Contribution Rates and Benefit Amounts
Are the Benefits Themselves Taxed?
The deduction you pay through payroll isn’t the end of the tax picture. How benefits are taxed when you collect them depends on which program paid out.
Disability Insurance benefits are generally not taxable at the federal or California state level. The exception is narrow: if you receive DI as a substitute for unemployment insurance, those payments are taxable on your federal return but still exempt from California state tax.10California Franchise Tax Board. Special Circumstances
Paid Family Leave benefits are treated as unemployment compensation for federal tax purposes and are taxable on your federal return, though California does not tax them. The EDD issues a Form 1099-G reporting the taxable PFL amount you received for the year.11Employment Development Department. Form 1099G FAQs
The SDI line on your paycheck is a withholding, not an income tax, so it is not refunded when you file your California return. If more than one employer withheld SDI from your wages in the same year and the combined amount is more than the law requires, you can claim the excess through the Franchise Tax Board; that is the main situation where SDI withholding shows up on a return at all.