What Is SDI Tax and Who Has to Pay It? Details on Short-Term Disability Program
What is SDI tax? The SDI tax, or State Disability Insurance tax, is what funds short-term disability programs. The SDI label is only used in California.
Filing your taxes can be a daunting process that's filled with a lot of confusing acronyms. SDI tax, for example, is one item that you'll actually only see on your taxes if you're a resident of California. So what is SDI tax, who has to pay it, and what other states have similar programs?
Employees are required to have a certain amount of money withheld from their paychecks every pay period — this is called payroll withholding. SDI tax falls under the umbrella of payroll withholding, but what is it for? SDI taxes are state disability taxes used to fund that state's short-term disability program.
Who has to pay SDI tax?
Technically, the only employees who are required to pay SDI taxes are taxpayers in California. That's because California is the only state to use the designation of SDI. However, a few other states have similar programs under a different name, usually a Temporary Disability Insurance (TDI) tax.
The states or jurisdictions that have a state disability insurance tax or one with the same purpose include the following:
- New Jersey
- New York
- Puerto Rico
- Rhode Island
Unlike the SUI Tax, which is the unemployment insurance tax that employers must pay, the SDI tax is paid by the employee. The funds for the SDI tax are deducted from employee gross pay and are paid entirely by employees, with no contribution from employers.
What is the state disability insurance tax rate in the states that have one?
Currently, the rates for the amount withheld from employee paychecks for state disability coverage or SDI tax vary but have a maximum taxable wage limit and a set percentage. Some states also include paid family medical leave in disability insurance.
California has a 1.1 percent rate on gross wages with a taxable wage limit of $145,600. Hawaii's is 50 percent of the cost, and not more than 0.5 percent of covered weekly wages, up to a maximum per week of $6.00.
In New Jersey, employees contribute 0.14 percent of their gross pay to disability insurance. The taxable wage limit is $151,900. Employers in New Jersey also contribute.
New York's rate is 0.5 percent of gross pay up to $0.14 daily and $2.60 monthly. Puerto Rico's employee contribution rate is 0.3 percent, with a taxable wage limit of $9,000. Rhode Island's contribution rate is 1.1 percent up to an $81,500 taxable wage limit.
How often is SDI tax withheld from my paycheck?
In states with SDI tax like California, SDI tax or TDI tax is usually deducted from every paycheck, no matter what their pay cycle may be. It's a compulsory deduction, so employees don't have the option to not pay it.
What are the benefits of SDI tax?
If you live in a state that has an SDI tax, that means you are covered in the event that you need to take a leave of absence from work. As a worker, you get credit for your contributions to the SDI tax fund and can get access to those funds if you face a temporary disability from illness or injury and aren't able to work.
Some states also have a paid family medical leave program.
A similar need is for paid family medical leave, which typically covers employee leave in order to care for a newborn, an ill family member, or deal with the employee's own medical condition. Only 11 states currently offer paid family and medical leave (while the Family Medical Leave Act, or FMLA, is only for unpaid leave).
California, Colorado, Connecticut, Delaware, Massachusetts, Maryland, New Jersey, New York, Oregon, Rhode Island, and Washington, plus the District of Columbia, offer paid family and medical leave. Each state has its own guidelines around maximum monetary amounts and qualifications for that leave.