California’s SDI tax and VPDI contributions fund the same short-term wage replacement benefits, but they flow through different systems: SDI is a mandatory state payroll deduction administered by the Employment Development Department, while a VPDI (Voluntary Plan for Disability Insurance) is a private, employer-sponsored plan approved by the EDD that replaces the state tax. For 2026, the employee cost is capped at the same rate either way — 1.3% of wages — and the baseline benefits match. The real differences show up in who processes your claim, whether your plan includes at least one improvement over the state floor, and your ability to opt out.
What SDI Covers by Default
State Disability Insurance covers nearly all private-sector employees in California unless their employer has an approved voluntary plan in place. It’s funded entirely by employee payroll deductions, which appear on your pay stub as “SDI” or “CASDI.” Employers withhold the money but don’t contribute anything on top.1Employment Development Department. Fact Sheet: State Disability Insurance Program (DE 8714C)
SDI has two components. Disability Insurance (DI) pays benefits when a non-work-related illness, injury, surgery, pregnancy, or substance abuse recovery keeps you from working. Paid Family Leave (PFL) pays benefits when you take time off to care for a seriously ill family member, bond with a new child, or address needs tied to a family member’s military deployment.1Employment Development Department. Fact Sheet: State Disability Insurance Program (DE 8714C)
Not everyone is in the program. Most government workers, interstate railroad employees, some domestic workers, certain nonprofit employees, and self-employed people are excluded unless they’ve bought into elective coverage.
What a Voluntary Plan Is
A VPDI is a private plan an employer sets up as a legal substitute for SDI. The employer applies to the EDD for approval, then either contracts with a private insurance carrier or self-insures to deliver the same DI and PFL benefits the state program provides.2Employment Development Department. Voluntary Plan If your employer runs an approved VPDI, your payroll deduction goes to the private plan instead of the state. You don’t pay into both.
By law, a voluntary plan must include at least one benefit that’s better than what the state offers. That could be a higher weekly benefit, a shorter waiting period, or a longer benefit duration. Claims are handled by the employer or a third-party administrator rather than the EDD, which often means faster processing.2Employment Development Department. Voluntary Plan
What You Pay in 2026
The SDI withholding rate for 2026 is 1.3% of all wages, with no taxable wage ceiling.3Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values The wage cap was eliminated on January 1, 2024 under Senate Bill 951, so high earners now pay SDI on every dollar.4Employment Development Department. May 2025 Disability Insurance (DI) Fund Forecast
Under a VPDI, your contribution cannot exceed the current SDI rate. If the state rate is 1.3%, your voluntary plan deduction must be 1.3% or less. Some voluntary plans charge less than the state rate; none can charge more. So as an employee, your cost is capped at the same level whether you’re on the state plan or a private one. The difference is where the money goes: SDI premiums are collected and held by the EDD as a state tax, while VPDI premiums stay within the private plan.
What You Get: Benefit Amounts and Timing
SDI and approved voluntary plans use the same baseline wage replacement formula. Your weekly benefit is calculated from your income during a base period roughly 5 to 18 months before your claim starts. Lower earners receive about 90% of their weekly wages, and higher earners about 70%, up to a maximum weekly benefit of $1,765.5Employment Development Department. Disability Insurance Benefit Payment Amounts
DI claims come with a seven-day unpaid waiting period. Your first payable day is the eighth calendar day of the claim.6Employment Development Department. Disability Insurance Claim Process PFL provides up to eight weeks of benefits within a 12-month period.
Because a voluntary plan must beat the state plan on at least one dimension, your VPDI may shorten the waiting period, raise the weekly maximum, or extend how long benefits last. That’s the extra you’re getting for paying the same premium. Ask your employer or plan administrator which specific improvement your plan includes; it varies from plan to plan.
Your Rights If You’re on a VPDI
You aren’t locked in. Any individual employee can opt out of a voluntary plan and stay on state SDI. If you opt out, your employer must send your SDI contributions to the EDD Tax Branch on your behalf.2Employment Development Department. Voluntary Plan
New hires face a timing wrinkle. Voluntary plan coverage usually starts on your first day, but some employers impose a waiting period. SDI covers you automatically during that gap.7Employment Development Department. Voluntary Plan Claim Eligibility and Benefits
If your employer’s voluntary plan is terminated, whether by the employer or by the EDD revoking approval, employees revert to state SDI coverage. One caveat matters here: the EDD has stated that employees currently covered under a voluntary plan are not eligible for state disability insurance while that plan is in effect, so if a plan simply stops paying benefits on your active claim without being formally terminated, you may not be able to switch to SDI mid-claim.8Employment Development Department. Voluntary Plan FAQs That’s why the EDD requires VPDI employers to post a bond or security deposit as a financial backstop for benefits.
Federal Tax on Benefits
Both programs converge on tax treatment. The IRS treats DI and PFL payments from state sickness or disability funds as taxable income, so benefits you receive from either SDI or a VPDI must be included in your gross income on your federal return.9Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
Federal income tax isn’t automatically withheld from these payments the way it is from a paycheck. If you want withholding, submit Form W-4S to the payer, whether that’s the EDD or your employer’s plan administrator. Otherwise you may need to make estimated tax payments to avoid an underpayment penalty at filing time.
Your contributions themselves appear in Box 14 of your W-2, labeled “Other.” California SDI deductions may be deductible on your federal return as a state tax if you itemize, though the $10,000 cap on state and local tax deductions limits the practical benefit for many filers.
Side-by-Side Comparison
- Funding source: SDI uses a mandatory state payroll tax; VPDI uses private premiums collected by the employer.
- 2026 employee rate: SDI is 1.3% of all wages; VPDI must be 1.3% or less.3Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values
- Wage ceiling: Neither has a taxable wage cap as of 2024.
- Claims processing: SDI claims go through the EDD; VPDI claims go through the employer or a third-party administrator.
- Benefit level: Both provide 70–90% of wages up to $1,765 per week, but a VPDI must offer at least one improvement over the state floor.5Employment Development Department. Disability Insurance Benefit Payment Amounts
- Employee choice: SDI is the default; employees can opt out of a VPDI and remain on SDI.
- Federal tax treatment: Benefits from either program count as taxable income on your federal return.9Internal Revenue Service. Life Insurance and Disability Insurance Proceeds
Which system covers you is decided by your employer. If your company hasn’t set up a voluntary plan, you’re on SDI. If it has, your cost is capped at the same rate, your baseline benefits match, and you can always opt out and return to the state program. The practical differences — how quickly a claim is processed, which single benefit your VPDI improves on, and whether you’re dealing with the EDD or a private administrator — matter most at the moment you actually file.