If you live outside California but sometimes work there, you owe California SDI tax only on the wages you earn while physically performing work inside the state. The 2026 withholding rate is 1.3% of those California-source wages, with no cap on taxable earnings.1Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values Where your employer is headquartered doesn’t matter. Where you sit while doing the work does.
When California SDI Applies to a Non-Resident
The dividing line is the location of the work, not the location of the paycheck. An employee whose services are performed entirely outside California is not subject to California employment taxes, even if the employer is based in the state.2Employment Development Department. Information Sheet – Multistate Employment (DE 231D) Fly in for a week of meetings at the California office, though, and SDI applies to the wages attributable to that week. There’s no minimum-day threshold and no de minimis exception. Day one counts.
For workers who split time across states, the EDD uses a four-part test, applied in order, to decide which state’s payroll rules cover the wages.2Employment Development Department. Information Sheet – Multistate Employment (DE 231D)
- Localization. If all or most of your work happens in California and any out-of-state work is temporary or minor, your entire wages fall under California payroll taxes. Occasional business trips elsewhere don’t change that.
- Base of operations. If localization doesn’t resolve things, California claims your wages when your permanent work base — the place you regularly start from, return to, and receive instructions — is in California and you perform at least some work there.
- Direction and control. If the first two tests don’t decide it, California applies when the employer’s general direction and control over your work originates in California and you perform some services in the state.
- Employee residence. As a last resort, California applies if you live in California and work there at least sometimes. As a non-resident, this test won’t pull you in.
California also participates in the Interstate Reciprocal Coverage Arrangement, which lets employers request that a multistate worker’s wages be covered under a single state’s system. If you split time across states, ask your employer whether such an election is in place.
The 2026 Rate and the End of the Wage Cap
For 2026, SDI withholding is 1.3% of taxable wages, up from 1.2% in 2025.1Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values The EDD director sets the rate each year using a statutory formula tied to the Disability Fund’s balance. By law it can range from 0.1% to 1.5%.3California Legislative Information. California Unemployment Insurance Code 984
The bigger change is what happened on January 1, 2024. Senate Bill 951 eliminated the annual taxable wage ceiling. Before that, SDI applied only up to a capped amount, and wages above the cap were exempt. Now the 1.3% rate applies to every dollar of California-source wages with no upper limit.4Employment Development Department. Contribution Rates and Benefit Amounts
For non-residents, only the portion of wages earned while physically in California is subject to the rate. If you earn $400,000 a year and spend 5% of your working time in California, 1.3% applies to the $20,000 in California-source wages, producing an SDI bill of $260. Under the old wage cap, a high earner might have owed nothing once total wages passed the ceiling. That escape hatch is gone.
What Your Employer Should Withhold and Show on Your W-2
Your employer is legally responsible for withholding the right SDI amount. That means tracking how many days or hours you physically work in California and applying 1.3% only to those wages. Employers that fail to withhold or remit face a 15% penalty on the delinquent amount.5Employment Development Department. Penalty Reference Chart
At year-end, the total SDI withheld appears in Box 14 of your W-2, typically labeled “CASDI.”6California State Controller’s Office. Form W-2 Wage and Tax Statement FAQs Your California-source wages should appear in Box 16, and any California personal income tax withheld in Box 17. Check Box 16 carefully. If your employer put your total nationwide wages there instead of just the California portion, you’ll have a problem when you file your California return.
If your employer runs a Voluntary Plan approved by the EDD instead of participating in the state SDI program, the withholding rules still apply to your California-source wages. Box 14 will read “VPDI” rather than “CASDI,” and claims go through the employer’s plan instead of the EDD.7Employment Development Department. Voluntary Plan
Collecting SDI Benefits if You Live Out of State
Something many non-residents miss: if you paid into SDI, you can collect from it. Where you live doesn’t affect eligibility.8Employment Development Department. Disability Insurance – Eligibility FAQs The same is true of Paid Family Leave, which is funded through SDI contributions.9Employment Development Department. FAQs – Paid Family Leave Eligibility
To qualify for disability benefits, you need at least $300 in wages during your base period — a 12-month window roughly 5 to 18 months before your claim starts — with SDI deducted from those earnings.10Employment Development Department. Disability Insurance Benefit Payment Amounts The program replaces roughly 70% to 90% of your weekly wages depending on income, up to a maximum of $1,765 per week in 2026.11Employment Development Department. Maximum Weekly Benefit Amount 2026 Payments come by direct deposit, debit card, or mailed check regardless of where you live.12Employment Development Department. Your Benefit Payment Options
One catch that trips up out-of-state claimants. The EDD’s online physician certification system requires a license issued through the California Department of Consumer Affairs. A doctor licensed in another state has to call the EDD at 1-855-342-3645 before they can register and submit medical certification.13Employment Development Department. Certify or Extend Claims – Basics for Physicians/Practitioners Flag this to your doctor early or your claim will stall.
Filing a California Return and Fixing Over-Withholding
Non-residents with California-source income generally file Form 540NR, reporting only the income sourced to California. The SDI amount in Box 14 is not a credit against California income tax; SDI and personal income tax are separate. Your income tax payment is the Box 17 figure, not Box 14.
Before 2024, workers with SDI deductions from multiple employers that exceeded the annual wage cap could claim the excess as a refund on their California return. With the wage cap gone, that line on the 540NR has been removed and marked “reserved for future use.”14Franchise Tax Board. 2025 540NR Booklet For contributions made after 2023, there is no excess SDI to reclaim through the tax return.
What you can still fix is over-withholding: SDI taken on wages you didn’t earn in California. Start by asking your employer to correct it and issue an adjusted W-2. Most payroll errors get resolved there. If the employer won’t correct it and you’re not required to file a California income tax return, you can file Form DE 1964 (Claim for Refund of Excess California State Disability Insurance Deductions) directly with the EDD, attaching copies of your W-2s and mailing it to the Special Processes Group in Sacramento. The deadline is three years after the end of the calendar year in which the excess deductions were made.15Employment Development Department. Claim for Refund of Excess California State Disability Insurance Deductions If you are required to file a California return, the EDD expects you to claim any SDI refund through the Franchise Tax Board on your 540NR rather than sending the DE 1964. Filing with the wrong agency delays or kills the refund.
Situations Where SDI Isn’t Withheld
A few categories of workers are excluded from SDI even when they perform work in California. Employees of churches and religious orders recognized by the IRS are not subject to SDI withholding, though their California-source wages remain subject to state personal income tax.16Employment Development Department. Church and Religious Order Employers Government employees covered by other disability programs and certain school employees may also be exempt. If your work falls into one of these categories, SDI shouldn’t come out of your California-source wages regardless of your residence.