No Income Cap: California's New SDI Tax Hits High Earners Hardest

California's New Paycheck Change: What You Need to Know About the 2025 Tax Increase

Starting January 2025, California workers will notice a small but meaningful change in their paychecks. The state's Employment Development Department (EDD) has quietly approved an increase in the State Disability Insurance (SDI) tax rate from 1.1% to 1.2%. Here's what this means for you and your wallet.

The Bottom Line

• Your SDI tax rate will increase by 0.1%
• This affects almost all California workers
• For every $100,000 in earnings, you'll pay an extra $100 per year
• There's no longer a cap on taxable wages
• The change starts January 2025

What's Changing and Why?

The SDI program, which provides disability insurance and paid family leave benefits, is getting a boost. For example, if you earn $100,000 annually, you'll see about $8 more taken out of your monthly paycheck. The increase might seem small, but it adds up, especially for higher earners since there's no longer a ceiling on taxable wages.

The Benefits Package

The tax increase comes with some improved benefits:

• If you make under $63,000: You'll get 90% of your pay during disability or family leave
• If you make over $63,000: You'll get 70% of your pay (up from 60%)

These benefits cover situations like:

• Recovering from illness or injury
• Caring for a sick family member
• Supporting a military family member
• Bonding with a new child

Looking Ahead

This isn't the end of the changes. According to state analysis, more increases are planned:

• 2027-2030: Expect additional increases of 0.1% to 0.2% each year

The Political Side

The change has sparked some debate. While EDD's Deputy Director Loree Levy emphasizes the program's importance for working families, others like Assemblyman Joe Patterson (R-Rocklin) criticize the timing, especially given recent promises to address California's cost of living issues.

What's Different About This Change?

Interestingly, this tax increase was implemented with minimal public announcement. KCRA 3's investigation revealed that the EDD had only posted the information on their website, without issuing press releases or social media announcements. CalTax, a taxpayer advocacy organization, was among the first to spot and publicize the change.

What You Should Do

1. Review your paycheck calculations for 2025
2. Consider the impact on your annual budget
3. Remember these benefits are available if you need them
4. Stay informed about future rate changes
5. Check the EDD website for program updates and details

Note: Some public agency workers and those with specific collective bargaining agreements may be exempt from these changes. If you're unsure about how this affects you, check with your employer or tax advisor.

Source: Based on reporting by Ashley Zavala, California Capitol Correspondent for KCRA, December 2024