SDI tax, or state disability insurance tax, is a payroll tax required in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. It funds wage replacement for employees who can't work because of a non-work-related illness, injury, or pregnancy, and in some of those states; it also funds paid family leave (PFL). Some states refer to it as temporary disability insurance (TDI).
If you hire an employee in one of these six U.S. states or territories, SDI tax will begin to apply to your business.
In this article, learn what SDI tax is, and what your employer responsibilities are.
How SDI tax works
SDI tax mechanics follow a similar process in each state or territory that requires it:
Employer withholds or pays the SDI tax.
Employer remits the tax to the state or to a carrier, depending on the state.
Employee files claims when needed.
Other than those similarities, you’ll find that the law name, employer and employee contribution rate, who pays, and filing rules vary widely across jurisdictions.
Gusto's payroll software identifies each employee's work state, applies the right program and rate, and automatically calculates, withholds, and remits state disability contributions in states that require them. For new states, Gusto also guides you through registering your business with the right agencies. That means you can hire the best person for the job, wherever they live, without state disability rules becoming a payroll headache.
States and territories that require SDI contributions | Referred to as | 2026 employer/employee SDI contribution rate | Who pays SDI tax? | How often is SDI tax reported/remitted? |
SDI, or CASDI | 1.3% of wages, no wage cap | 100% employee paid | Reported quarterly on the DE 9 and DE 9C; deposited on the same schedule as your federal payroll taxes | |
Temporary Disability Insurance (TDI) | Employee share capped at 0.5% of wages, max $7.50/week | Employer covers at least half the premium; employee's share is capped | No quarterly tax return. Paid as an insurance premium billed by your carrier, which also files the annual TDI report with the state | |
TDI | Employee: 0.19% of wages up to $171,100 wage base (max $325.09/year). Employer: $44.80–$336 per employee, experience-rated | Divided between employee and employer with separate rates | Filed quarterly with the state | |
Disability Benefits Law (DBL) | Employee share is 0.5% of wages, capped at $0.60/week | Employer covers the rest of the premium; employer can elect to pay full amount | No state filing. Paid as an insurance premium, billed by the carrier or NYSIF | |
TDI | 1.1% of wages, max annual employee contribution is $1,100 | 100% employee paid | Filed quarterly with the state | |
Seguro por Incapacidad No Ocupacional Temporal (SINOT) | 0.3% each (employer and employee), capped at the first $9,000 of wages — max $27/year per side, $54 combined | Split 50/50 by default; employer can elect to pay full amount | Filed quarterly with the state |
Who is responsible for withholding and filing the SDI tax
Even in states where SDI tax is employee-funded, the employer is responsible for withholding and filing the tax. Before you can withhold or file the tax, you generally need to register with the state agency running the program (such as California's EDD or New Jersey’s Division of Employer Accounts) and get an employer account number.
Can I use a private plan instead of the state SDI fund?
In SDI states, private insurance plays one of two roles: replacing the state benefit or supplementing it. Here’s what it looks like:
California, New Jersey, and Puerto Rico let you swap the state fund for an approved private plan, and it has to match or beat the state's minimums.
Rhode Island is state-run only.
Hawaii has no state fund. Employers secure coverage through an approved private carrier or self-insurance. You can pay the full premium or withhold the employee's share up to the state's caps.
In New York, coverage comes from the choice of a private carrier, NYSIF, or self-insurance.
Tip: If you use a private plan instead of the state fund, you still withhold from the employee. You just remit that money to the private carrier instead of the state.
Some employers add a private short-term disability policy on top of the state benefit, since SDI typically caps out well below full salary. If you're not in one of the six SDI jurisdictions, short-term disability insurance is likely your employees' only disability coverage, since there's no state program.
Is paid family leave included in SDI tax?
Whether you also owe paid family leave depends on the state. California and Rhode Island fund both from a single payroll deduction. New Jersey and New York split them into two separate line items (TDI/FLI in NJ, DBL/PFL in NY). Puerto Rico requires paid maternity leave under a separate law, funded directly by the employer rather than through a payroll deduction. In Hawaii, no state PFL program exists.
Is SDI the same as workers' comp, short-term disability, or paid family leave?
No, each covers a different situation. SDI replaces wages for a non-work-related illness, injury, or pregnancy. Workers' compensation covers injuries that happen on the job. Short-term disability insurance is a private policy any employer can choose to offer, on top of or instead of SDI. And paid family leave benefits cover time off for a family member's needs, not the employee's own health.
FAQs
What if my remote employee lives in an SDI state?
SDI obligations follow where the employee works, not where your business is headquartered. So if you have even one remote employee living and working in a state that requires SDI tax, you need to withhold (and in some cases contribute) SDI tax for that person, even if your company has no other footprint there.
Are self-employed people required to pay SDI tax?
No, SDI applies to wages paid to employees, not to self-employment income. Self-employed individuals and independent contractors aren't required to pay it. For example, in California, they can opt in voluntarily through the Disability Insurance Elective Coverage (DIEC) program, which charges a premium based on net profit and provides up to 39 weeks of disability benefits.
Does SDI include job protection?
No, SDI only replaces wages while an employee is out. Job protection during leave comes from the federal Family and Medical Leave Act (FMLA) and some state laws, all of which have their own eligibility rules. These often cover the same leave as SDI, but one doesn't guarantee the other.
Can any employees or businesses be exempt from SDI tax?
Yes, most exemptions are based on the type of worker, not the size of the business. Independent contractors, clergy and religious workers, certain government employees, and in some states, family members employed by a relative are commonly excluded, though exact rules vary by state.
Why is there a number in Box 14 on my California employees' W-2s?
Box 14 is where employers report SDI tax withheld, since it doesn't have its own dedicated W-2 box the way federal or state income tax does.
