In California, if you, as a taxpayer, are the 100% shareholder and also an officer of a corporation, you can save up to $998 in 2017 by electing to exclude your wages from the corporation from SDI withholding.
The SDI withholding rate for 2017 is 0.9%. The taxable wage limit is $110,902 for each employee per calendar year. Therefore, the maximum withholding for each employee is $998. The taxpayer can claim the exclusion by filing a simple one page statement with the California Employment Development Department (EDD). The exclusion will be effective in the calendar quarter filed. (see www.edd.ca.gov/pdf_pub_ctr/de459.pdf).
However, by electing to be excluded from SDI, the taxpayer will not be eligible for state disability benefits. Employees covered by SDI are also covered by Paid Family Leave (PFL) insurance. Therefore, before making the election, the taxpayer should consider the expected value of any potential benefits. For most shareholder/officers, they may find that the cost savings significantly exceeds the value of the state disability insurance, especially if they already have private disability insurance in place.
In addition, if the shareholder/officer’s spouse is also a shareholder and officer, either or both may file for the exclusion. If the spouse is not a shareholder of record, the spouse could still be considered a shareholder if the stock is held as community property. If the stock is held as separate property, then the spouse would not qualify for the exclusion. Besides being a shareholder, the spouse must also be a legally appointed officer to qualify for the exemption.
To be excluded from SDI for 2017, it is recommended that the statement is filed with EDD in early January.
If you have any questions or need further information, contact the EDD or a WFY tax advisor at info@cpa-wfy.com.