A California contractor with 15 employees has a quarterly payroll of $180,000. What is the State Disability Insurance (SDI) contribution the employer must withhold from employees' wages if the current SDI rate is 0.9%?
Correct Answer
A) $1,620
SDI is calculated as $180,000 × 0.009 = $1,620. This amount is withheld from employee wages, not paid by the employer.
Why This Is the Correct Answer
Option A is correct. SDI is calculated by multiplying the total taxable payroll by the SDI rate: $180,000 × 0.009 = $1,620. SDI is an employee-paid tax that the employer withholds from employee wages and remits to the Employment Development Department (EDD). The employer does not contribute to SDI directly from its own funds.
Why the Other Options Are Wrong
Option B: $1,350
Incorrect. $1,350 would result from applying a rate of 0.75% ($180,000 × 0.0075 = $1,350), which is not the stated rate of 0.9%. This answer likely reflects confusion with a different payroll tax rate.
Option C: $1,485
Incorrect. $1,485 would result from applying a rate of 0.825% ($180,000 × 0.00825 = $1,485). This is not the stated SDI rate and does not correspond to any standard payroll tax rate. This may result from averaging or misremembering the rate.
Option D: $1,800
Incorrect. $1,800 would result from applying a rate of 1.0% ($180,000 × 0.01 = $1,800). While close to 0.9%, using 1% overstates the SDI withholding. Always use the exact rate provided in the question.
Memory Technique
SDI = 'Subtracted from Dollars Individually' — it comes out of employee paychecks. The math is simple: Payroll × Rate = Withholding. For 0.9%, move the decimal two places left: 0.9% → 0.009. Then: $180,000 × 0.009 = $1,620.
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