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SDI Tax

What is An SDI Tax?

So an SDI tax is short for State Disability Insurance tax. A few select states have implemented this payroll tax. SDI tax money collected goes into a state fund. This fund is set up to support individuals who can no longer work due to disability, which can be either physical or mental disability unrelated to their profession.

Strictly speaking, California is the only state with SDI tax named as such. A few other states with TDI's (temporary disability insurance) work the same. Employers are responsible for worker's compensation insurance employees the SDI tax. SDI tax is deductible on federal tax returns.

States That Have SDI Tax

As it stands now, there are only five states in the Union that run temporary disability insurance plans and collect SDI tax to fund them. The exception is Hawaii which has a different setup that will be explained later. Here are the five states.

  • California
  • Rhode Island
  • New York
  • New Jersey
  • Hawaii

The incorporated territory of Puerto Rico has a disability insurance tax paid equally by employees and employers. The current rate is 0.6% on the first $9000 of wages per annum.

How Are The SDI Rates Calculated?

The state legislature sets state taxes, and the SDI tax is no different. This being the case, every state takes a different approach to collecting and setting taxes. As a result, there is not one state charging the same as another when it comes to SDI tax. These are the current SDI taxation rates for each state running either SDI or TDI plans in 2022.

  • California: The Golden State charges the highest rate of SDI tax of all. The withholding rate is set at 1.10%. The taxable threshold is $145,600 per employee per annum—a maximum of $1,601.60.
  • Rhode Island: The Ocean state comes in next; the rate is the same at 1.10% but with a much lower threshold. Rhode Island taxpayers only have to pay taxes up to $81.500 per annum. That's a maximum of $896.50
  • New York: The Empire State comes in with a staggeringly low 0.5% withholding rate capped at $0.60 per week! Employers do, however, make a contribution and can opt to pay it all.
  • New Jersey: Well, the Garden State outdoes its neighbor at an unbelievably low 0.14%. However, the taxation threshold is high at $151,900, making that a cap of $212.66 per annum.
  • Hawaii: The Aloha State runs a different system, it doesn't collect SDI tax, but all employers must have TDI coverage. The employer may cover all costs or ask for a contribution from employees. However, the employee's contribution can only be half of the premium. They are capped at a rate of up to 0.5% of a weekly wage.