Key Takeaways
• SDI tax is a state-level payroll deduction that funds short-term disability benefits for employees unable to work due to non-occupational illness, injury, or pregnancy.
• Only California (SDI), Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico (TDI) mandate these contributions.
• California’s 2026 rate is 1.30% with no wage cap, the highest among all states.
• SDI is distinct from workers’ compensation (work injuries) and unemployment insurance (job loss).
• Employers in SDI states must correctly withhold, contribute where required, and remit on schedule, payroll software with auto-updating tax tables is strongly recommended.
Are you someone who checks their paycheck stub and notices a deduction under the acronym SDI? Are you an HR manager who manages payroll and operates in any of the states such as California, New Jersey, New York, Rhode Island, or Hawaii? Then it is important to know about the SDI tax. Here, we provide everything you need to know about SDI tax.
What Is SDI Tax?
SDI tax stands for State Disability Insurance tax. It is a mandatory payroll tax collected in select U.S. states that funds short-term wage replacement benefits for employees who are temporarily unable to work due to a non-work-related illness, injury, or pregnancy.
The program is entirely separate from federal taxes. Only a handful of states and territories – California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico- operate SDI or equivalent Temporary Disability Insurance (TDI) programs.
California is the only state that uses the specific term “SDI tax.” Other participating states refer to their programs as Temporary Disability Insurance (TDI), though they function in largely the same way. California’s program, formally known as CASDI, was established in 1946 and today covers more than 18.7 million workers across the state.
What Does SDI Tax Pay For?
The SDI fund provides short-term income replacement to eligible workers in qualifying situations. Covered conditions generally include:
• Physical or mental illnesses requiring recovery time
• Injuries sustained outside of work (e.g., accidents, surgeries)
• Pregnancy, childbirth, and recovery
• Treatment for drug or alcohol abuse
• Paid Family Leave (PFL) – in California, SDI also funds leave taken to bond with a new child or care for a seriously ill family member
Important distinction: SDI does not cover work-related injuries. Those are handled by workers’ compensation insurance, which is a separate employer-paid program. Similarly, SDI is not the same as unemployment insurance (SUI), which covers job loss.
SDI Tax Rates by State (2026)
SDI rates are set at the state level and updated annually. Here are the current 2026 figures for each jurisdiction with a mandatory program:
State | Program Name | 2026 Rate | Wage Base | Who Pays |
California | SDI (CASDI) | 1.30% | No cap (unlimited) | Employee only |
New Jersey | TDI | ~0.19% | $165,400 | Employee (employer-only since 2023) |
New York | SDI | 0.50% | $0.60/week max | Employee & Employer |
Rhode Island | TDI | 1.20% | $89,700 | Employee only |
Hawaii | TDI | 0.50% of weekly wages | Max $6.21/week | Employer (can split) |
Puerto Rico | TDI | 0.30% | $9,000 | Employee & Employer |
Important Update on California (Effective January 1, 2024): California got rid of its taxable maximum altogether. This was a policy in which SDI had only been applicable until an individual reached their ceiling. Since 2024, however, any salary earned will be taxed according to SDI, and therefore, people making big bucks in California are paying much more now. The SDI rate for 2026 has increased to 1.30%, as opposed to 1.20% last year.
Reminder: Check the annual changes to rates before calculating payroll taxes.
Who Pays SDI Tax - Employee or Employer?
Whether the employee, the employer, or both pays SDI tax depends entirely on the state:
• Employee-only contributions: California and Rhode Island. Deducted directly from employee paychecks.
• Employer-only contributions: New Jersey (since 2023, employees no longer contribute to TDI).
• Shared contributions: Hawaii, New York, and Puerto Rico split the cost between employer and employee.
In all cases, the employer is responsible for withholding the correct employee share from each paycheck, contributing any employer share, and remitting both to the relevant state agency on schedule (typically quarterly).
How Is SDI Tax Calculated?
The calculation formula is straightforward: multiply the applicable tax rate by the employee’s taxable wages (subject to the state’s wage base, if any).
Example - California 2026:
• Employee annual wages: $80,000
• SDI rate: 1.30%
• SDI tax withheld: $80,000 × 1.30% = $1,040 for the year
Example - Rhode Island 2026:
• Employee annual wages: $70,000
• TDI rate: 1.20% on the first $89,700
• TDI tax withheld: $70,000 × 1.20% = $840 for the year
Because California now has no wage cap, there is no maximum withholding ceiling in that state; the full rate applies to all earnings. Other states with a wage base stop withholding once that threshold is met for the year.
SDI Tax vs. Workers' Compensation vs. Unemployment Insurance
These three programs are frequently confused. Here is how they differ:
These three programs are frequently confused. Here is how they differ:
Feature | SDI Tax | Workers’ Comp | Unemployment Insurance (SUI) |
Injury Type Covered | Non-work-related illness, injury, pregnancy | Work-related injuries only | Job loss (layoff) |
Who Pays? | Employee (mainly) | Employer only | Employer only |
Federal or State? | State only | State only | State & Federal |
Example Trigger | Surgery recovery, pregnancy leave | Workplace accident | Laid off from a job |
Where Does SDI Tax Appear on a Pay Stub and W-2?
SDI tax withholdings show up in two key payroll documents:
• Pay stub: Listed under deductions, usually labeled “SDI,” “CASDI,” “State DI,” or “TDI” depending on your state.
• W-2 (Box 14 or Box 19): Contributions to SDI are typically reported in Box 14 of Form W-2 as a state and local tax. In California, CASDI is reported. Employees can generally deduct this amount on their state income tax return.
It is worth noting that SDI benefits received by an employee are generally not taxable, unless they function as a substitute for unemployment benefits, in which case they may be considered taxable income.
SDI Tax: Employer Compliance Obligations
For HR and payroll teams, SDI compliance involves several responsibilities:
• Accurately withhold the correct SDI rate from employee wages each pay period
• Contribute any employer share where applicable (Hawaii, New York, Puerto Rico)
• Remit contributions to the state agency on a quarterly basis
• Reflect SDI deductions correctly on employee pay stubs and year-end W-2 forms
• Register for the state’s SDI program or obtain an approved alternative voluntary plan through a private insurer
• Update withholding rates at the start of each calendar year, as rates change annually
Employers in SDI-mandated states who fail to withhold or remit correctly risk penalties and back-payment obligations. Payroll software that auto-updates state tax tables can significantly reduce compliance risk.
Can Employees Opt Out of SDI Tax?
Generally, no. SDI is a mandatory payroll deduction in the states that require it. Employees cannot individually opt out.
However, employers have some flexibility. In states with SDI mandates, employers may choose to offer an alternative voluntary plan (AVP) through a private insurer, as long as it meets or exceeds the state’s minimum benefit requirements. To implement an AVP, the employer typically needs approval from the majority of affected employees.
Frequently Asked Questions (FAQs)
What does SDI stand for in payroll?
The abbreviation SDI means State Disability Insurance. It is used in payroll when referring to the required state payroll tax paid out of the employee’s salary in states such as California, New Jersey, New York, Rhode Island, and Hawaii.
Is SDI tax the same in every state?
No. The rates and programs for SDI are not standardized among all states. The term SDI tax applies solely to California’s program. All other states refer to it as the “TDI” or Temporary Disability Insurance. Each jurisdiction has different rates, wage ceilings, and liability for who pays the tax.
Is SDI tax refundable?
An employee working in states where SDI exists and who has been over-withheld in that state – due to having changed jobs during the course of that year, for instance – may be eligible to apply for a refund when filing a state tax return.
Does SDI tax cover maternity leave?
Yes, in SDI states, pregnancy and childbirth recovery are qualifying events for short-term disability benefits. California’s SDI program also funds Paid Family Leave (PFL), which covers bonding time with a new child after birth, adoption, or foster placement.
What is the difference between SDI and FMLA?
FMLA (Family and Medical Leave Act) is a federal law that provides up to 12 weeks of job-protected, unpaid leave. SDI tax funds state-level wage replacement programs that pay a portion of an employee’s wages during qualifying disability or family leave. They can run concurrently; an employee may receive SDI wage benefits while on FMLA unpaid leave.
Which states do not have SDI tax?
Most U.S. states do not have a mandatory SDI or TDI program. Only California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require SDI or TDI contributions as of 2026. All other states rely on employer-provided short-term disability plans or federal programs.