California's 2026 State Disability Insurance (SDI) rate is 1.3% with no taxable-wage cap for subject wages. That does not mean every payment labelled severance automatically receives a 1.3% deduction.
EDD's official Types of Payments table (DE 231TP) lists dismissal or severance pay as subject to SDI unless the conditions in California Unemployment Insurance Code section 1265 are met. EDD's Wages information sheet (DE 231A) also identifies severance paid to supplement unemployment benefits as a payment outside state employment-tax wages while still reportable as California personal-income-tax wages.
The defensible answer is therefore conditional: payroll needs to classify what the payment is for, not merely read the word “severance” in an agreement.
The 2026 SDI Rate
EDD's current contribution-rates page states that:
- the 2026 employee SDI withholding rate is 1.3%;
- the taxable-wage limit was removed effective 1 January 2024; and
- all subject wages are within the uncapped SDI base.
The final point matters. The uncapped base applies after a payment is classified as subject wages; it does not erase the exceptions in EDD's payment-classification materials.
Conditional Payroll Example
For an illustrative $100,000 severance payment:
- if payroll determines that the full payment is subject to SDI, the SDI deduction at 1.3% would be $1,300;
- if a statutory exclusion applies to all or part of the payment, the SDI amount would differ; and
- California personal-income-tax withholding is a separate calculation with separate rules.
Federal income-tax withholding, Social Security, and Medicare also remain separate. A qualifying separately identified payment may use the optional 22% federal method or an aggregate method. Social Security depends on same-employer year-to-date wages and the $184,500 federal wage base for 2026.
Payroll Withholding and Benefit Credit Are Separate Questions
EDD describes subject wages as wages used when determining Unemployment Insurance, Disability Insurance, and Paid Family Leave benefits. It also publishes payment-specific exceptions. That means a generic article cannot determine benefit credit from the gross severance figure or payment schedule alone.
Before relying on an estimate, useful facts to obtain include:
- how payroll will report the payment for UI, ETT, SDI, and California PIT purposes;
- whether payroll believes the CUIC section 1265 exception applies;
- the payment date and whether the amount is separately identified from regular wages;
- the subject-wage amount that will appear in the employer's EDD reporting; and
- any written EDD explanation that applies to a pending benefit claim.
EDD or a qualified California payroll professional can confirm classification. A licensed employment attorney can address what the agreement says and whether changing its terms would affect legal rights.
Lump Sum Versus Instalments
Payment structure can affect timing and reporting, but it does not create a universal rule that a lump sum is always better or that instalments always delay benefits. Agreement wording, the purpose of the payment, payroll classification, and the benefit programme all matter.
Questions to verify include:
- Does the agreement describe compensation for a release, continued salary, or a supplement to unemployment benefits?
- Will the employer report each instalment as subject wages?
- Does a change in payment timing affect health coverage, unemployment, disability, or other agreement terms?
- Has EDD confirmed the treatment for the particular claim and reporting record?
These are classification questions, not a basis for directing one payment structure over another.
Worked Withholding Illustration
Assume a $90,000 payment and no regular wages paid at the same time.
| Component | General 2026 treatment | |---|---| | California SDI | $1,170 only if the full $90,000 is classified as subject wages | | California PIT withholding | Depends on the permitted payroll method and inputs | | Federal income-tax withholding | Optional 22% or aggregate method when the IRS conditions are met | | Social Security | 6.2% only on same-employer Social Security wages remaining below $184,500 | | Medicare | 1.45%, plus any applicable Additional Medicare withholding |
This illustration is not a take-home calculation. It omits any deduction whose classification or inputs are unknown, and final federal and California liabilities are determined on the returns.
Beyond withholding
See the package beyond the tax estimate.
Withholding is one part of a severance package. Offer terms, benefits, equity, and release language can matter too. In about 6 minutes, get a Severance Score, an estimated benchmark range, potential red flags, and three negotiation angles to consider.
SeveranceCalc is not a law firm and does not provide legal advice. Our calculators and reports are educational estimates only. Only a licensed employment attorney in your state can advise you on your specific legal rights.
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Official Sources to Check
- EDD Types of Payments, DE 231TP: dismissal/severance classification across UI, ETT, SDI, PIT withholding, and PIT wages
- EDD Wages, DE 231A: subject-wage and payment exclusions
- EDD 2026 rates and withholding: current SDI rate and uncapped subject-wage base
- IRS Publication 15: federal supplemental-wage and FICA rules
- SSA 2026 contribution and benefit base: $184,500 Social Security wage base
Bottom Line
California's 2026 SDI rate is 1.3% with no wage cap for subject wages. EDD's own table says dismissal or severance pay is generally subject but recognises a statutory exception. The employer's reporting classification and the facts behind the payment determine whether a simple 1.3% multiplication is appropriate.
The Severance Pay Tax Calculator can model a state percentage supplied by payroll, but it does not decide California SDI classification, benefit eligibility, or final tax liability.