Tax Increase Coming for Millions of Californians on Jan. 1

Tax Increase Coming for Millions of Californians on Jan. 1

A man walks by housing units in Huntington Beach, Calif., on March 17, 2023. (John Fredricks/The Epoch Times)

Travis Gillmore

Travis Gillmore

12/30/2023

Updated: 1/2/2024

A California law that aims to provide more generous short-term disability and family leave benefits will take effect on Jan. 1, increasing taxes for middle-class families and high-income earners.
Senate Bill 951, passed in 2022, removed the earnings limit and maximum contribution for the state’s disability insurance tax—better known as SDI withholdings—starting in 2024 to fund expanded benefit payouts set to begin in 2025.
SDI taxes—determined annually by the Legislature and the state’s Economic Development Department—were previously capped with 2023 maximum contributions of around $1,400, and those earning more than $153,000 were exempt from paying the tax on the higher earnings.
The change will increase contributions by taxing all wages 1.1 percent, thus boosting the tax rate from 9.3 to 10.4 percent for those making between $68,350 and $349,137, and up to 14.4 percent for the highest earners making more than $1 million a year.
A spokesperson for the economic development department confirmed on Dec. 27, 2023, to The Epoch Times that only those making more than the prior cap will experience an increase in their SDI withholding rates.
Even with the changes, the department said expenditures would outpace revenues in coming years.
“While removing the taxable wage ceiling would initially result in a higher ... balance, additional contributions from higher-income workers would not offset the additional benefit payments over time,” the development department said in legislative analyses published in 2022.
Additional increases for all taxpayers of between 0.1 and 0.2 percent are scheduled annually for the years 2027 through 2030, according to the economic development department.
One lawmaker said the tax hikes—those to take effect now and in the future—will negatively impact families across the state.
“A tax increase, no matter how minor, still means less money to pay for rent, utilities, mortgage payments, groceries, and other necessities,” state Sen. Brian Dahle (R-Bieber) told The Epoch Times by email on Dec. 28, 2023. “Policymakers should be more conscious of family budgets given the past few years which brought widespread economic pain and disruption to many of California’s families.”
The new law also allows the economic development department to raise the rate as high as 1.5 percent for all income brackets to cover the cost of the program.
Rates will be determined by evaluating the balance of the SDI fund and the amount of benefits paid, according to the agency’s website.
Disputes by taxpayers are considered for some payroll taxes, but SDI is exempt from question under state law, with all employees—and now all wages—subject to the same tax rate.
Critics have questioned the complex language in the bill that some say obscured a tax hike with limited discussion or debate when the bill was passed.
“Heads up California; the stealth tax of SB 951 ... starts this January,” one taxpayer wrote on Dec. 22, 2023, on X. “California will take up to 14.4% of my hard-earned income and can’t even curb retail theft, arrest criminals and clean up the streets.”
Proponents of the new law argued in legislative analyses that the taxes make disability insurance and paid family leave programs “accessible to California’s most marginalized families.”
The new law expands payments for those receiving disability benefits for injuries occurring outside of work and for eligible employees to receive payments while caring for family members.
Dozens of nonprofits and advocacy groups supported the bill, with minimal opposition listed in legislative analyses.
The measure passed on a partisan vote in 2022, with Republicans in both houses of the Legislature opposed.
Assembly Republicans wrote on a Caucus website that they are “concerned that allowing taxes to increase will continue to make California unaffordable for many Californians.”
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Travis Gillmore

Travis Gillmore

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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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