Who Is Exempt From California SDI Tax: Government, Clergy, Contractors

California’s State Disability Insurance tax is withheld from almost every paycheck in the state at 1.3 percent of wages, with no earnings cap for 2026.¹ But a narrower set of workers than most people realize is exempt from California SDI tax: federal and other-government employees, certain family employment arrangements, church and religious organization staff, self-employed workers and independent contractors, several specific occupational categories, employees of nonprofits and public entities that have not opted in, and individuals who qualify for a personal religious-belief exemption. Each exemption comes with the same catch. No contributions means no Disability Insurance or Paid Family Leave benefits from the state when you need them.

Government Workers

Federal employees do not pay California SDI. That covers civilian federal agencies, the U.S. Postal Service, and the armed forces, all of whom are served by separate federal disability and leave programs.²

Employees of foreign governments working in California are exempt. So are employees of other U.S. state governments and their political subdivisions.²

California state and local government employees are a different story and are covered in the nonprofits-and-public-entities section below.

Family Employment

Four family relationships make an employee exempt from SDI when the employer is the family member directly:

A child under 18 working for a parent, or for a partnership in which both partners are the child’s parents.
A spouse working for their spouse.
A registered domestic partner working for their registered domestic partner.
A parent working for their son or daughter.

The exemption vanishes the moment a separate business entity sits in the middle. If your mother’s business is a corporation or an LLC, your legal employer is the entity, not your mother, and SDI applies. In a partnership, every partner has to independently satisfy the family relationship test, or the whole arrangement loses the exemption.³

Church and Religious Organization Employees

Employees of churches, conventions or associations of churches, and organizations operated primarily for religious purposes are exempt from SDI. Ordained, commissioned, or licensed ministers performing ministerial duties qualify, as do members of religious orders carrying out duties required by the order.² This exemption attaches to the nature of the employer. It is separate from the individual religious-belief exemption described later.

Self-Employed Workers and Independent Contractors

If you are a sole proprietor, partner, or independent contractor, you are not an employee for SDI purposes and no SDI is owed on your earnings.⁴ Nobody withholds it from your pay, and nothing requires you to send it in yourself.

The flip side is that you have no access to DI or PFL benefits based on self-employment income unless you buy in. The EDD runs an opt-in program called Disability Insurance Elective Coverage for self-employed workers who want that protection. It requires a minimum net profit of $4,601 per year, carries a 2026 premium of 8.84 percent of net profit, and locks you in for two calendar years once you join.⁴⁵

Real Estate Agents, Direct Sellers, and Other Statutory Categories

A set of specific occupational and situational exemptions sits in the Unemployment Insurance Code. Licensed real estate brokers and salespersons, mineral and oil-and-gas brokers, cemetery and yacht brokers and salespersons, and direct sellers are exempt from SDI when they meet the EDD’s conditions. In general, pay must be tied to sales output rather than hours, and a written contract must treat the worker as an independent contractor for tax purposes.²

Other exempt categories include:

Students employed by the school, college, or university where they are enrolled and regularly attending classes.
Students under 22 in a qualified work-experience program combining academic instruction with employment.
Interns, except those employed by a private nonprofit hospital.
Elected officials and members of legislative bodies or the judiciary of a state or local government.
Election campaign workers.
Newspaper and magazine vendors who buy at a fixed price and keep the margin from consumer sales.
Patients employed by the hospital in which they are patients.
Foreign professional athletes who are not U.S. citizens or residents and perform only occasional engagements in California.

The specific conditions matter. A student who drops below the required enrollment, for example, can lose the exemption mid-semester.²

Nonprofits and Public Entities That Have Not Opted In

Employees of nonprofit organizations, local governments, public schools, community colleges, and Indian tribes are not automatically in the SDI system. These employers have to affirmatively elect coverage, and the mechanism depends on the employer type.

Local public entities and Indian tribes can elect SDI through a vote of the governing board combined with a written petition signed by a majority of workers. Public school and public agency employers can elect through a negotiated bargaining agreement, or separately for management and non-bargaining-unit employees.⁶ Nonprofits can opt in by filing a written petition signed by a majority of the employees who would be covered.⁷

If your nonprofit or public-sector employer has not made that election, you will not see SDI withheld from your paycheck, and you have no claim to state DI or PFL benefits through that job.

Individual Religious-Belief Exemption

An individual employee can personally opt out of SDI on religious grounds, separately from any employer-based exemption. The rule is narrow. You must belong to a recognized religious organization whose established teachings oppose accepting any form of public or private insurance benefits, grounded in the organization’s or its members’ commitment to provide for dependents in time of need.⁸

You claim the exemption by filing Form DE 506 with the EDD, certifying your religious objection to receiving any DI or PFL benefits. Approval is effectively permanent and can only be revoked if you leave the religious organization or the EDD finds the filing fraudulent. The waiver covers both the obligation to contribute and the right to collect.⁸

Household Workers Below the $750 Threshold

Hiring domestic help does not create an automatic SDI exemption, but there is a wage floor. A household employer must begin withholding SDI once a worker is paid $750 or more in cash wages in any calendar quarter.⁹ Below $750 in a quarter, no SDI is withheld. The value of meals and lodging doesn’t count toward reaching $750, but once the threshold is crossed, SDI applies to total compensation including those non-cash items.¹⁰

Once you cross $750 in any quarter, withholding continues through the rest of that year and the entire following calendar year, even if wages later drop back below the threshold.⁹

Voluntary Plans Are Not an Exemption

If your paystub shows no SDI withholding and your employer offers a Voluntary Plan, you are not exempt. You are enrolled in a private insurance arrangement your employer has substituted for state SDI, approved by the EDD. The VP has to provide benefits at least equal to the state program across the board, include at least one benefit better than the state’s, and cannot charge employees more than the state SDI rate.¹¹

You can decline a Voluntary Plan. When hired, you must receive written notice explaining the VP and your right to reject it in favor of state SDI coverage.¹² Either way, you still have disability and family leave protection. That is not true of the exemptions above.

If You Work in More Than One State

Working partly outside California does not automatically exempt you. The EDD applies a sequential test to decide whether your wages belong in the California SDI system. First, is your work localized in California, meaning all or substantially all of your services happen here with any out-of-state work being temporary or incidental? If yes, all your wages are subject to California SDI. If your work is not localized in any single state, the EDD looks in order at your base of operations, then the state from which your work is directed and controlled, and finally your state of residence. Some service has to be performed in California before any of those tests pulls you in.¹³

Workers who perform all of their services outside California are entirely outside the SDI tax, regardless of where the employer is based.

What Being Exempt Costs You

Every one of these exemptions carries the same trade-off. If you don’t pay into the fund, you can’t draw from it. No Disability Insurance payments when you can’t work because of illness or injury. No Paid Family Leave benefits for bonding with a new child or caring for a seriously ill family member.¹⁴

Federal employees, self-employed workers who haven’t opted into DIEC, employees of nonprofits and public entities that never elected coverage, and anyone with an approved religious exemption all have to plan for short-term disability and family leave through other channels: private disability insurance, savings, or benefits offered directly by the employer. The exemption saves 1.3 percent of wages. A serious illness or a new baby costs far more than that in lost income, and that gap is the real cost of being outside the SDI system.

1
Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values
2
Employment Development Department. Exempt Employment
3
Employment Development Department. Family Employment
4
Employment Development Department. Disability Insurance Elective Coverage
5
Employment Development Department. Disability Elective Coverage Benefits and Premium Amounts
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Employment Development Department. Selecting Coverage for Employers
7
Justia Law. California Unemployment Insurance Code 701-713
8
Employment Development Department. Notice of Submission to Exemption From Disability Insurance
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Employment Development Department. Household Employer
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Employment Development Department. Information Sheet: Household Employment
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Employment Development Department. Voluntary Plan
12
Employment Development Department. Employers’ Guide to Voluntary Plan Procedures
13
Employment Development Department. Information Sheet: Multistate Employment
14
Employment Development Department. Am I Eligible for DI Benefits