SDI Tax
Unlocking the World of SDI Tax: State Disability Insurance Demystified
Deciphering SDI Tax
An SDI tax, denoting State Disability Insurance tax, stands as a crucial payroll tax mandated by specific states. The funds channelled through SDI tax contribute to a state disability insurance program, extending financial support to workers grappling with the inability to work due to non-professionally related physical or mental disabilities. While California explicitly labels it as SDI tax, akin programs, such as temporary disability insurance (TDI), are implemented in several other states. Notably, SDI tax is shouldered by employees, distinguishing it from workers’ compensation insurance, which employers fund.
States Embracing SDI Tax
*Currently, five states in the United States implement a temporary disability insurance plan:
- California
- Hawaii
- New Jersey
- New York
- Rhode Island*
Diverse SDI Tax Rates
*The taxation rates for temporary disability insurance fluctuate across states, with each setting its distinctive rate. As of 2020, here are the tax rates for states with a temporary disability program:
- In California, the SDI tax rate is fixed at 1.00 percent of SDI taxable wages per employee annually, with a maximum tax cap of $1,229.09 per employee per year.
- Hawaii offers employers flexibility, enabling them to either cover the cost of temporary disability insurance or withhold up to 0.5 percent of an employee’s weekly wages, capped at $5.60.
- New Jersey employs an employee contribution rate of 0.26 percent of the taxable wage base ($134,900), resulting in a maximum annual contribution of $350.74 per employee.
- New York provides employers with the option to cover the cost of state disability insurance or deduct up to $0.60 from eligible employees’ wages per week.
- Rhode Island’s Temporary Disability Insurance tax is set at 1.3 percent of an employee’s pay.*