SDI is a state payroll tax that funds short-term disability insurance
SDI stands for State Disability Insurance. It is a payroll tax withheld from your wages in California, New Jersey, New York, and Rhode Island. The money goes into a state fund that pays you a portion of your wages if you cannot work due to a non-work injury, illness, or pregnancy.
You will see SDI listed as a line item on your pay stub if you work in one of these four states. The amount withheld varies by state and changes each year based on the state's tax rate and your gross wages. Unlike federal income tax, SDI is not optional — if your employer operates in a state with SDI, the withholding is required by law.
SDI is separate from workers' compensation, which covers injuries that happen at work. SDI covers situations outside work — a broken leg from a fall at home, surgery recovery, or pregnancy-related leave. It also covers some family leave situations in states that have expanded their programs.
Key Takeaways
- SDI is withheld from your paycheck only if you work in California, New Jersey, New York, or Rhode Island.
- The tax funds a state insurance program that replaces part of your income when you cannot work due to illness, injury, or pregnancy.
- SDI withholding rates and wage bases change annually, so the amount taken from each paycheck varies by year and state.
- You do not file a separate form to pay SDI tax — your employer handles the withholding automatically.
How much SDI tax comes out of your paycheck
The SDI tax rate and the maximum wages subject to the tax change every year. Each state sets its own rate. For example, California's rate for 2024 is 1.0% of wages up to a maximum annual wage base. New Jersey, New York, and Rhode Island have different rates and wage bases.
Your employer withholds SDI from your gross pay before federal income tax is calculated. If you earn $50,000 in a state with a 1.0% SDI rate, you would pay $500 in SDI tax for the year (assuming the entire amount is subject to the tax). Once you reach the maximum wage base for the year, no further SDI is withheld from that paycheck forward.
You can find the current year's SDI rate and wage base on your state's labor or employment department website. The rate is the same for all employees in that state — your employer cannot charge you a different rate based on your job or salary level.
Who has to pay SDI tax
If you are a W-2 employee working in California, New Jersey, New York, or Rhode Island, SDI is withheld from your paycheck automatically. You do not have a choice about whether to pay it.
Self-employed workers and independent contractors in these states may be able to pay SDI voluntarily in some cases, but the rules vary by state. Some states require self-employed people to pay; others make it optional. Check your state's labor department website for self-employment SDI rules.
If you work for a federal, state, or local government agency, you may be exempt from SDI because you are covered under a different disability insurance system. Railroad employees covered under the Railroad Retirement Act are also exempt.
What SDI covers and what it does not
SDI replaces a portion of your wages — typically 50% to 70%, depending on your state and income level — for up to 26 weeks in most states. You receive benefits only if you cannot work due to a medical condition that is not work-related.
SDI covers pregnancy and childbirth, recovery from surgery, serious illness, and non-work injuries. Some states have expanded SDI to include family leave — time off to bond with a newborn, care for a family member, or handle situations related to domestic violence or military service. These expanded programs are sometimes called Paid Family Leave (PFL) or Family Leave Insurance (FLI), and they are funded through the same payroll deduction or a separate one.
SDI does not cover work injuries — those are handled by workers' compensation insurance. It also does not cover job loss or unemployment, which are covered by unemployment insurance. You cannot receive SDI and unemployment benefits at the same time for the same period.
How to file for SDI benefits
To receive SDI benefits, you must file a claim with your state's labor or employment department. You cannot file through your employer or the IRS. The process and forms differ by state.
Most states allow you to file online through their labor department website. You will need to provide information about your condition, the date you stopped working, and your recent pay stubs or W-2. Your doctor may need to complete a form certifying that you cannot work.
Processing times vary, but most states take two to three weeks to approve or deny a claim. During that time, you are not receiving benefits. If your claim is approved, benefits are usually deposited into your bank account or sent by debit card, depending on what your state offers.
SDI on your tax return
SDI tax withheld from your paycheck is not deductible on your federal income tax return. It does not reduce your taxable income the way federal income tax withholding does.
If you received SDI benefits during the year, those benefits may be taxable depending on your total income and the state. California does not tax SDI benefits, but other states may. Check your state's tax rules or ask a tax professional if you are unsure whether your SDI benefits are taxable in your state.
Your employer will report SDI withholding on your W-2 in Box 14 (Other). This is informational only — you do not use it to calculate your federal tax liability. Some states use this information for state tax purposes.
The difference between SDI and other payroll taxes
SDI is one of several payroll taxes withheld from your check. Federal income tax, Social Security (FICA), and Medicare are withheld from all employees nationwide. SDI is withheld only in four states and funds a state-specific program.
Unlike Social Security, which you pay into over your entire career and receive in retirement, SDI is a short-term benefit. You pay into it while working, but you only receive benefits if you meet the conditions during the time you are employed and covered. Once you stop working, you cannot file new SDI claims, even if you paid into the system for years.
Workers' compensation is also a payroll-related benefit, but it is funded entirely by employers, not employees. SDI is funded by employee withholding in most states, though some states require employers to contribute as well.
Frequently Asked Questions
Can I get my SDI tax back if I do not use the benefits?
No. SDI tax is not refundable. It funds a state insurance pool, similar to how health insurance premiums work. You pay into the system whether or not you use the benefits. If you do not file a claim during the year, the money stays in the state fund.
What happens to my SDI if I change jobs?
Your SDI coverage is tied to your employment in a covered state, not to a specific employer. If you move to a new job in the same state, your new employer will withhold SDI from your paycheck. If you move to a state without SDI, you lose coverage going forward. Any benefits you earned from previous employment remain with you if you become unable to work while still in a covered state.
Do I have to report SDI benefits to my employer?
You should notify your employer that you have filed an SDI claim, especially if you will be out of work for an extended period. However, the claim itself is filed with the state, not your employer. Your employer does not approve or deny SDI claims. Some employers have their own short-term disability plans that run alongside SDI — check your employee handbook to see if yours does.
Is SDI the same as paid family leave?
SDI and paid family leave are related but separate programs in most states. SDI covers medical conditions and pregnancy. Paid family leave (or family leave insurance) covers time off to bond with a newborn, adopt a child, or care for a family member. Some states fund both through the same payroll deduction; others use separate deductions. Check your pay stub and your state's labor department website to see which programs explore to you.