What is SDI tax?

State disability insurance (SDI) taxes are payroll withholding deductions that fund the state’s short-term disability program. In states that charge this tax, workers are credited for their contribution and have the option to access the state’s disability program if they’re unable to work due to accident or illness.

In some states, this deduction is known as Temporary Disability Insurance (TDI); the only state that specifically designates the deduction as SDI is California. SDI funds are deducted directly from employees’ gross pay. Unlike other deductions, such as Social Security and Workers’ Compensation, SDI is paid entirely from the employees’ wages, with no contribution from the employer. Deductions are typically applied on every check, regardless of whether the employee is paid weekly, biweekly or on a longer cycle.

Payroll withholding and automatic deductions

Not all employees see the same deductions on their pay stubs. While some withholding expenses are involuntary and applied evenly to all workers, others are voluntary or partly voluntary.

The decisions employees make when they file their payroll forms affect these voluntary deductions. SDI isn’t voluntary, although employers in some states are allowed to offer employees an alternative voluntary plan that meets state minimums for coverage.

Automatic payroll deductions

Most employees have several deductions automatically withheld from their pay, which cover a range of state and federal taxes. Federal income tax is usually withheld, although employees may have the option to claim exempt status and not have any of these funds withheld.

Union dues, if any, are also typically deducted directly from paychecks. In the states that operate an SDI program, deductions to the program or a voluntary alternative are mandatory.

Voluntary deductions

Employees have the option to authorize further deductions from their gross pay, over and above the required withholding. Many employees opt to put a portion of each check into a pension plan or 401(k), employee savings plan or another benefit, such as a group health insurance plan.

Workers also have the option to contribute more than the minimum required amount to many of their mandatory deductions. For example, you may choose to overpay your taxes by claiming fewer exemptions than you’re entitled to on your W-4 form. You can also choose to contribute extra funds to a retirement or benefit plan.

Employees can also contribute extra pay toward SDI or voluntary disability plans. This speeds up your acquisition of credits, making you eligible for short-term disability sooner than you normally would be. You can also opt into higher than necessary contributions to unemployment insurance and some other worker protection programs.

Where do payroll deductions go?

Payroll deductions go to different recipients, depending on the type of program they pay into. Federal taxes go to the IRS, while retirement deductions go to the investment plan that manages them. Health insurance deductions go to the insurance carrier, and union dues go to the union fund.

Social Security and long-term disability (SSDI) deductions pay into the federal Social Security Administration. These deductions require minimal effort on the part of employees. The initial paperwork and weekly deductions are typically managed by the HR or internal payroll department at your work.

Because SDI is administered by the state, contributions to this program go to the state disability administration. Each state that operates an SDI tax program manages contributions according to its own law, but most state government administrations operate in a similar way. Funds contributed through payroll SDI withholding go into the general fund, which is then available for benefit payments.

If your employer operates an alternative voluntary plan, the payroll deductions are required by law to be the same or less than the SDI maximum amount. These funds go to the company that operates the alternative plan, where they’re managed in compliance with state law.

Which states have SDI tax?

Only five states operate an SDI or TDI program. Each state has its own laws and rules governing its program, although they’re broadly similar. In each state, payroll SDI taxes are withheld from each worker’s check and paid into the state disability fund. The amounts withheld are different in each state, depending on the SDI tax rate and the individual employee’s pay rate. Alternative voluntary plans are also available in all states that manage an SDI program. The five states with an SDI tax are:

• California
• Hawaii
• New Jersey
• New York
• Rhode Island

How much is the SDI tax?

The amount withheld from workers’ paychecks depends on two factors: the state SDI tax rate and the amount of money the employee earns in a given pay period. Rates charged in each state are:

• California: California charges an SDI tax of 1% of all employee wages up to the statutory maximum of $122,909 per year. SDI withholding contributions top out at $1,229.09 annually. All earnings after this ceiling are exempt from further SDI taxation, although this exemption expires at the end of the fiscal year.
• Hawaii: Hawaii allows employers to contribute their employees’ share of the SDI tax as a benefit. If the employer doesn’t offer this coverage, they may withhold up to 0.5% of workers’ weekly paychecks, up to a maximum amount of $5.60 per check for employees earning $1,120 per week or more. Unlike California, Hawaii doesn’t impose an annual contribution limit.
• New Jersey: Wage earners in New Jersey contribute 0.26% of their total taxable base wage to the state’s TDI program. This base tops out at $134,900 per year, which limits annual payroll contributions to $350.74.
• New York: Like Hawaii, New York gives employers an option to pay their workers’ share of state disability as a benefit of the job. If the employer doesn’t offer this, then payroll may authorize withholdings of 0.5% of taxable wages, up to a maximum of $0.60 per week, or an annual maximum of $31.20. Employers in New York are not permitted to withhold $0.60 as a flat rate, but they must deduct the 0.5% if that is the lesser amount.
• Rhode Island: Rhode Island charges a 1.3% TDI tax on all employee pay.

What does SDI tax fund?

The purpose of SDI is to provide benefits for employees who can’t work for a short time due to illness or injury. It’s not to be confused with long-term disability benefits (SSDI), which pay monthly benefits for qualifying workers whose disability is expected to last months or years.

Employees who lose the ability to work for short periods, such as an illness that lasts a few days, typically call in sick and stay home. If your employer offers sick leave or vacation time, you can use this time during short illnesses. If you expect your absence to last longer than 30 days, either because of a persistent illness, serious injury or elective medical procedure that leaves you unable to work, you can apply for short-term disability. After the initial one-week waiting period, benefits kick in and pay out for up to 50 weeks. If you’re still unable to work after your SDI benefits run out, you may be eligible to apply for SSDI.

How much are SDI/TDI benefits?

SDI and TDI pay a percentage of the wages you earned during a base period that usually covers a 12-month period that runs from five to 18 months prior to the date you filed your claim. The wages you earned during this base period are used to calculate your benefit award amount.

Short-term disability benefits pay different amounts in each state. Benefit ranges are:

• California: Claimants in California are eligible for 60-70% of the wages used to compute their base pay. In 2021, California SDI imposes a maximum weekly benefit amount of $1,357.
• Hawaii: State legislative guidelines in Hawaii set workers’ maximum weekly benefit at 58% of their previous base pay for a benefit period of up to 26 weeks. In 2021, the maximum benefit amount for Hawaii workers is $640 per week.
• New Jersey: In New Jersey, your base wage period is the last eight weeks you earned money before filing your claim. In 2021, workers in New Jersey are paid up to two-thirds of this base rate, with a maximum weekly benefit of $903.
• New York: New York uses the eight weeks immediately prior to filing a claim as the base wage period. Temporarily disabled workers may claim up to 50% of their wage amount from this period, up to a maximum of $170 per week, for up to 26 weeks.

Rhode Island: Rhode Island’s TDI program computes base wages for four out of the previous five quarters in which you worked. Weekly benefits are set at 4.62% of the maximum weekly rate you earned during your base period. In Rhode Island, the minimum TDI award is $107 per week and the maximum in 2021 is $978.