California Law Increases Taxes for Residents Earning $153,000+, Middle-Income in Certain Counties

As we say goodbye to 2023, Californians are welcoming several legislative changes that will have a notable impact on higher wage earners. One of the key modifications relates to the state’s short-term disability program, signaling a shift in its funding mechanism.

California’s short-term disability program is designed to provide support to individuals who are unable to work due to non-work-related illnesses, injuries, or pregnancies. In the past, the program has been funded through a 1.1% tax on wages. However, an important change will take place on January 1, 2024.

In a significant departure from the previous system, a new law has been put into effect in 2022. This law, which was passed in 2023, brings about a notable change in the way taxes are applied. Previously, the tax was only applicable to wages below a certain threshold, which was approximately $153,000. However, under the latest legislation, this wage cap has been eliminated, resulting in a 1.1% tax being imposed on all wages, regardless of their amount.

Higher-income earners, individuals who earn more than $153,000 annually, will be directly affected by this change. Previously, these individuals were exempt from paying taxes on their earnings beyond this threshold. However, under the new regulations, they will now be required to contribute a 1.1% tax on their entire wages.

The reason for this change seems to be motivated by the desire to maintain the long-term viability of the short-term disability program and continue offering essential assistance to individuals dealing with health issues.

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