A method for determining a state of health (SOH) value for an electric power steering (EPS) system in a vehicle includes estimating a first Self-Aligning Torque (SAT) value using a tire dynamics model, which includes modeled dynamics in the linear region of a lateral force acting on the vehicle tires. The method also includes estimating a second SAT value using an extended state observer and nominal parameters for the EPS system, and calculating a variance between the first and second SAT values. The controller monitors a progression of the calculated variance over a calibrated interval using the controller to thereby determine the SOH value, and automatically executes a control action using the SOH value. An EPS system for a vehicle includes a steering wheel, torque and angle sensors, a rack and pinion assembly, a steering motor, and the controller. A vehicle is also disclosed having the same controller.