SDI Tax, or “State Disability Insurance Tax,” is a mandated payroll tax for a few states in the United States.
When workers lose their capacity to work due to a physical or mental impairment that is not directly connected to their line of employment, the state disability insurance program uses the funding from the SDI tax to offer financial help.
Employers deduct the State Disability Insurance Taxes from employees’ gross amount with all other withholdings.
Employers do not contribute to SDI Tax deductions like other withholdings, Employees’ Compensation, and Social Security. The contribution comes entirely out of the employees’ paychecks. The type of pay period does not affect the SDI Tax deduction.
What is the Purpose of an SDI Tax?
Don’t confuse SDI Tax with Long-Term Disability Benefits (SSDI). The primary purpose of the State Disability Insurance Tax is to offer benefits to workers who are temporarily unable to work due to sickness or accident.
On the other hand, SSDI is beneficial for employees who require financial assistance for months or even years due to a disability.
For instance, employees can call in sick and stay at home for a couple of days when they are experiencing sickness and unable to work for brief periods. According to company policies for illness, they are also eligible to take any Paid Time Off (PTO), such as sick leave or vacation.
However, the above scenario is different from applying for short-term disability. Short-term disability is an option if employees anticipate being absent for more than 30 days. It can be due to a severe injury, elective medical treatment, or chronic disease that prevents them from working.
They will begin receiving benefits after a one-week waiting period from which employees can get up to 50 weeks of benefits. Then again, the expiration of an employee’s SDI benefits will qualify them to apply for SSDI if they still have not recovered and cannot work.
Which U.S. States Require an SDI Tax?
State Disability Insurance Tax is only followed and mandatory in one state of the United States, that is, California. Other states offer Temporary Disability Insurance, which has its own tax rate and varies from state to state.
Except for California, which offers SDI, five other U.S. States offer TDI, and employers must withhold the coverage cost from employees’ paychecks.
How Much is the Rate of the States’ SDI Tax?
Each state has its own tax rate since temporary disability insurance policies differ from state to state. However, there are two criteria that determine the amount deducted from employees' paychecks: The state SDI rate of taxation and the salary amount of employees in each pay period.
You will find the tax rate for each state below:
1. California SDI Rate
California's SDI tax is 1 percent of employees' yearly SDI taxable wages. Each employee is subject to a yearly tax cap of $1,229.09. Any earnings beyond this threshold are not subject to further SDI taxes; however, this exemption ends after the fiscal year.
2. New Jersey TDI Rate
In New Jersey, the taxable pay base is $134,900, and the employee contribution rate for temporary disability is fixed at 0.26 percent of that amount. This translates to an employee contribution cap of $350.74 annually.
3. Hawaii TDI Rate
Employers in Hawaii have a choice as to whether to pay the cost of short-term disability insurance for their workers or withhold up to 0.5 percent of a worker's weekly salary but no more than $5.60. Moreover, Hawaii does not have a cap on yearly contributions as California does.
4. The Rhode Island TDI Rate
The taxable amount of 1.3 percent of an employee's salary is deducted to pay the Rhode Island Temporary Disability Insurance (TDI) levy.
5. New York TDI Rate
New York offers companies the choice to cover their employees' portion of state disability as a perk of employment, similar to Hawaii.
Payroll may approve 0.5% of taxable earnings to be withheld, up to a maximum of $0.60 per week or $31.20 annually, if the employer does not provide this option.
In New York, employers are not allowed to withhold $0.60 as a flat rate; instead, they must withhold 0.5% if that is the smaller sum.
6. Puerto Rico TDI Rate
In Puerto Rico, the TDI Tax currently has a 0.60% rate. According to the state, the tax responsibility is on both the employee and the employer.
The first $9,000 in wages and salary paid by an employer to an employee in a calendar year are subject to the disability insurance tax.
What are the Benefits Received from SDI Tax?
The amount of the benefit award is determined by the employee's salary during their base working period. Moreover, each state has a distinct payment level for short-term disability compensation.
Here are the five states’ SDI/TDI benefit details for further clarity:
1. California SDI Benefits
The maximum weekly compensation under California SDI is $1,357 in 2021. In California, a person claiming SDI benefits is qualified for 60-70 percent of the wages used to determine their SDI base pay.
2. New Jersey TDI Benefits
The past eight weeks an employee was paid before submitting a claim in New Jersey will constitute their base salary period. Up to two-thirds of this base rate, with a weekly benefit cap of $903, will be paid to New Jersey employees in 2021.
3. Hawaii TDI Benefits
The maximum benefit for Hawaii employees in 2021 was $640 a week. For a benefit term of up to 26 weeks, Hawaii state legislative regulations established the maximum weekly benefit for employees at 58% of their prior basic salary.
4. The Rhode Island TDI Benefits
In Rhode Island, the TDI reward started at $107 a week and has gone up to $978 in 2021. The TDI program in Rhode Island determines the basic salary for four out of the prior five quarters an employee worked.
The maximum weekly rate an employee has earned during their base period is set at 4.62% of their weekly benefits.
5. New York TDI Benefits
The base pay period in New York is eight weeks just before submitting a claim. Employees who are temporarily handicapped may be entitled to up to 50% wages from the claimed period, or $170 a week, for a maximum of 26 weeks.
6. Puerto Rico TDI Benefits
Benefits are accessible in Puerto Rico for the whole time of the incapacity or a maximum of 26 weeks during 52 weeks. $12 is the minimum weekly benefit amount, and $113 is the maximum.