Some high earners in the Golden State can expect to pay more California tax this year. That’s because the state has eliminated the wage cap on its 1.1% employee payroll tax for State Disability Insurance (SDI).
Gov. Gavin Newsom says the tax expansion will “ensure more low-wage workers, many of them women and people of color, can access the time off they’ve earned while still providing for their family.”
Removing the wage cap will fund an increase in the percentage of wages residents are entitled to while on paid family leave or out of work due to a disability.
The new California law went into effect on Jan. 1, so some high earners may feel the impacts of the change soon.
California income tax increase for 2024
The payroll tax isn't new for high-earning Californians, but previously, the tax was only imposed on wages up to $145,600. As of the first of this year, workers making more than $145,600 per year will now pay the tax.
Before the tax increase, California was ranked by Kiplinger as the most expensive state for millionaires, and it’s more expensive for 2024. The payroll tax expansion increases the state’s top income tax bracket from 13.3% to 14.4%. The new 14.4% tax rate applies to income over $1 million. That exceeds other notoriously high-tax states by far.
- New Yorkers making more than $25 million are taxed at a 10.9% rate.
- Hawaii’s income tax bracket maxes out at 11%.
- Millionaires in Massachusetts are hit with an additional 4% income tax, but their total state income tax rate doesn’t exceed 9%.
Although Californians with significant investment income will still pay more state tax than other U.S. investors, they are off the hook for the new tax hike. Capital gains will still be taxed at a maximum rate of 13.3% in California this year.
2024 federal income tax brackets
Some high earners in California might feel some tax relief where federal taxes are concerned, though, likely not nearly enough to make up for the state tax hike. The 2024 federal tax brackets have been inflation-adjusted by the IRS.
While the top federal tax bracket remains at 37% this year, that rate only applies to taxable income over $731,200 (if filing jointly) for 2024. For comparison, the 37% federal income tax rate applied to taxable income over $693,750 last year.
