SDI Tax

What is SDI tax?

SDI tax is a State Disability Insurance tax in California. It is a payroll deduction that funds support for workers who lose their ability to work due to physical or mental disabilities.

It is levied only in specific states in the US. However, California is the only state with a State Disability Insurance tax, though other states offer similar programs called Temporary Disability Insurance (TDI).

The SDI tax was established in 1946 as part of the California State Disability Insurance program. It is a taxable benefit for workers receiving it only if it is a substitute for unemployment benefits.

Who is eligible for SDI benefits?

More than 18.7 million workers in California are under SDI benefits. Individuals are eligible for SDI benefits when they meet the following requirements:

• Unable to perform regular and customary work duties for at least eight consecutive days due to a mental or physical illness, injury, or medical condition.
• Earned at least $300 in wages subject to SDI contributions during the 12-month base period (typically 5 to 18 months before the claim begins).
• Employed or actively seeking employment at the time the disability began.
• Experiencing a loss of wages due to the disability, as SDI is designed to replace lost income during temporary disability.
• File the claim on time since standard disability insurance claims must be submitted within 49 days of the disability’s start date.
• Documentation based on your claim type: medical certification for disability (DI) or care needs (PFL care), proof of relationship for bonding with a new child (PFL bonding), or military documentation for assistance (PFL military assist).

What are the tax benefits under SDI?

Under SDI, employees can enjoy tax benefits like:

• Non-taxable benefits: SDI benefits are not considered taxable income at the federal level. It allows recipients to retain their full benefit amount.
• Increased purchasing power: Since SDI benefits are tax-free, recipients receive more usable income compared to taxable benefits like wages or unemployment compensation.
• Exception for unemployment substitution: SDI benefits become taxable if received as a substitute for unemployment benefits, requiring recipients to report them on federal tax returns.
• State tax exemption: California follows federal tax treatment which means that SDI benefits are also exempt from state income tax.
• Employee contribution deduction: Employees may deduct SDI contributions as part of their state and local tax deductions on federal tax returns if they itemize, though the deduction is subject to the $10,000 cap under the Tax Cuts and Jobs Act.

How does SDI tax work?

California’s State Disability Insurance (SDI) tax funds benefits for workers facing temporary disabilities, paid family leave, or caregiving responsibilities.

Here’s how it works:

1. Taxes are paid by employees only

SDI is funded through employee payroll deductions, meaning a portion of workers’ wages is withheld for SDI contributions.

Employers do not directly contribute to SDI.

2. SDI tax rate is adjusted annually

The tax rate is decided based on the disability fund. The taxable wage limit changes when the maximum weekly benefit amount is updated.

Here are some past examples of tax rates and wage limits:

The SDI tax rate for 2025 is 1.2% on wages subject to SDI contributions.

3. Employees exempted from SDI tax include:

• Government employees including federal employees, public agency, public school employees
• Self-employed individuals (unless they voluntarily opt in)
• Religious organization employees
• Children working for parents, spouses employed by their spouse, and certain domestic workers earning less than $750 per quarter.
• Individuals who claim exemption based on religious beliefs in faith-based healing.

Can exempt individuals elect SDI coverage?

Yes, exempt individuals like public agency and school employees can opt-in as a group, such as through a bargaining unit. Self-employed individuals can also opt-in, but their tax rate is based on their prior year’s net business income instead of a fixed percentage of wages.

4. SDI vs Unemployment Insurance (UI) taxes

How do you calculate SDI tax?

California’s SDI tax is calculated for employees using the following formula:

SDI Tax = Gross Wages × Tax Rate

Since, the tax rate for 2025 is 1.2%, the formula becomes:

Unlike previous years, there’s no cap on taxable wages (since 2024). All employees have to pay 1.2% on all earnings, no matter how high their income.

Here’s an example of calculating SDI tax for an employee.

If Employee A earns $3,000 in a paycheck: $3,000 × 1.2% = $36 SDI tax withheld
Over a year, if Employee A earns $100,000: $100,000 × 1.2% = $1,200 total SDI tax

Note: SDI deductions are listed as “CASDI” on pay stubs.

Before 2024, SDI had a wage cap (e.g., $153,164 in 2023), but Senate Bill 951 removed this limit. Now, every dollar you earn is taxed at 1.2%

Which states have SDI tax in the US?

Here are the U.S. states and territories with State Disability Insurance (SDI) or Temporary Disability Insurance (TDI) taxes:

1. California

The employee pays 1.1% of all wages (no income cap). Funds both disability and paid family leave benefits.

2. Hawaii

Employees pay 0.5% of wages (up to $1,374.78/week). SDI is a shared cost in Hawaii, meaning, employers cover the remaining program costs.

3. New Jersey

Employers fund SDI through experience-rated contributions (0.1% to 0.75% of wages). In New Jersey, employees don’t contribute directly to SDI

4. New York

Employees in New York pay 0.5% of wages (with daily/weekly caps: $0.14/day max). Employers cover any remaining program costs.

5. Rhode Island

Employees pay 1.2% of wages (up to $87,000/year).

6. Puerto Rico (U.S. territory)

Both employees and employers pay 0.3% of wages (up to $9,000/year)

What are the SDI tax rates and limits for 2025?

Here’s a table that shows the SDI tax rates and taxable wage limits for 2025 as per jurisdiction.

How do you file an SDI claim?

The fastest way to file an SDI claim is by using the SDI online website. But first, you need to keep your information handy. The most important details include:

• California ID/Driver’s License
• Social Security Number (SSN)
• Employer’s details (name, address, phone from your last paystub)
• The last day you worked

Once you have your information ready, follow these steps:

1. Create your myEDD account: Visit the myEDD page and create your account with email, password, and security questions.

2. Start your SDI claim: Log into myEDD, then select “SDI Online” and then “New Claim”. Pick Pick “Disability Insurance” and fill out your personal details, employer info, and disability start date.

3. Choose your payment method: The options are direct deposit (fastest), debit card, and paper check.

4. Get doctor’s approval: After submitting, you’ll get a receipt number, keep this number saved. Share this number with your doctor/practitioner. After that, your doctor must submit medical forms within 49 days.

Here are some key deadlines:

You can track the status in your myEDD account (updates in about 14 days). For any other queries, contact the EDD SDI Hotline: 1-800-480-3287.

Do you get the SDI tax back?

No, SDI contributions function as insurance premiums, hence, they are non-refundable. However, there are certain exceptions for:

• Over-withholding errors (requires employer correction)
• Multiple state taxation (consult a tax professional)
• Ineligible earnings (requires formal appeal)