Employees throughout the country rely on the Family Medical Leave Act (FMLA) to temporarily protect their job when they cannot work due to a qualifying injury or illness. Workers in California have an added safety net that provides them with a portion of their lost wages during such times. This benefit is known as state disability insurance (SDI).
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What is CASDI tax?
The CASDI tax funds the state’s disability insurance program, which provides temporary wage replacement benefits to eligible employees who experience a qualifying injury or illness that prevents them from working. It’s paid for entirely by employees via mandatory payroll deductions.
What is a voluntary plan?
Instead of participating in CASDI, employers can sponsor their own voluntary plan. It must meet these criteria to be eligible:
- Offers all the same benefits as the SDI program
- Provides at least one benefit that is better than CASDI
- Does not cost employees more than the state insurance
- Matches any increase in benefits that CASDI implements
Who is eligible for CASDI?
Just because CASDI is a mandatory tax does not mean all employees who pay it are automatically eligible for wage replacement benefits. Their medical condition must meet one of the following criteria:
- Qualifying, non-work related illness or injury
- Elective surgery
- Pregnancy or childbirth recovery
- Residency for a limited period in an alcoholic recovery home or drug-free residential facility that is licensed and certified by the state in which the facility is located
Additionally, before employees can start receiving payment, they must demonstrate that they:
- Have been unable to perform their usual work for at least eight consecutive days
- Were employed or looking for work at the time they became disabled
- Lost wages because of their disability or, if on unemployment, have been looking for work
- Earned at least $300, from which SDI deductions were withheld during their base period
- Were under the care and treatment of a licensed health professional or an accredited religious practitioner during the first eight days of their disability
Employees must remain under care and treatment beyond the first eight days to continue receiving benefits. An independent medical examination may also be required.
What are the CASDI employee contribution rates?
Employers must withhold 1.1% of their employees’ gross wages for CASDI tax. The wage base limit is $145,600 per employee, per calendar year, and the maximum amount that can be withheld for each employee is $1,601.60.
Employees who meet the eligibility criteria may receive 60 to 70 percent of the weekly income they earned five to 18 months before their claim start date. These benefits last up to 52 weeks with a maximum payment of $1,540 per week.
What are an employer’s CASDI responsibilities?
Employers may not have to pay any portion of the CASDI tax, but they’re not entirely off the hook. California’s Employee Development Department (EDD) requires them to perform the following tasks to help support the program:
- Withhold CASDI tax from employees’ taxable wages and send it to the EDD
- Respond to EDD notices when employees file claims forms
- Inform employees about laws governing employment, benefits and working conditions
Can a company opt out of CASDI?
Most employers like to have options, especially when choosing benefits that may attract talent. That’s why California allows businesses to refrain from withholding CASDI tax if they offer a voluntary plan that meets the state’s requirements. They must also have written consent from most of their employees and send approval documentation to the EDD.
Other types of SDI Plans
CASDI provides disability benefits for millions of employees working for California businesses, but what about independent contractors and government workers? The EDD has them covered, too, albeit via different plans. Like CASDI, these plans provide partial wage replacement when an individual cannot work due to a qualified disability.
Self-Employed Disability Insurance Elective Coverage (DIEC)
Certain small business owners who aren’t required to pay CASDI, but still want a disability insurance policy, may participate in DIEC. Eligibility extends to entrepreneurs, independent contractors and general partners, but not limited partners or corporate officers. Participants pay DIEC premiums on a quarterly schedule.
Nonindustrial Disability Insurance (NDI)
Employees of the CA state government who may be eligible for disability benefits through NDI include the following:
- Permanent or probationary full-time or intermittent employees in “compensated employment” who are members of the Public Employees’ Retirement System (CalPERS) or the State Teachers’ Retirement System (CalSTRS)
- Employees who are excluded from collective bargaining and are full-time, permanent part-time or intermittent officers or employees of the state legislature and not civil service members
- California State University employees appointed half-time or more for either one year of service or one academic year or more
Frequently asked questions about CASDI
What is California SDI tax on my paycheck?
The CASDI tax noted on a pay stub is a payroll deduction for California state disability insurance.
Is California SDI tax mandatory?
Most California employees are required to pay the CASDI tax, but employers and certain small business owners do not.
Who is exempt from CASDI?
Employees may be ineligible for CASDI if their employer offers short-term disability insurance via a voluntary plan that meets the state’s requirements.
How do I know if I pay into SDI?
Employees can find CASDI tax on their pay statements, along with other deductions, such as payroll taxes, income taxes, benefit contributions, etc.
Is CASDI deductible on federal returns?
The IRS treats disability benefits as taxable income and must be reported on a federal tax return.
What is the maximum SDI for California?
The most that an employee can receive in disability benefits through CASDI is $80,080 per year (as of 2022).
What is the difference between Social Security Disability Insurance and SDI?
Social Security Disability Insurance (SSDI) is a federal program and SDI is a state program, each with different eligibility criteria. For instance, one of the requirements to obtain disability benefits via SSDI is accumulating so many work credits at the age disability begins. SDI, on the other hand, is not contingent on work credits, but on earnings and SDI taxes paid during a base period.
Are independent contractors eligible for CASDI?
Independent contractors are not eligible for CASDI, but may obtain comparable disability benefits through California’s Self-Employed Disability Insurance Elective Coverage (DIEC).
Which states have SDI tax?
Disability insurance is available in five states – California, Hawaii, New Jersey, New York and Rhode Island.
This article is intended to be used as a starting point in analyzing CASDI and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.