The terms used for taxes can be too many; when you are new to the subject, they seem endless and incomprehensible. Because, even if they make sense, with so much information, it is normal to end up overwhelmed.
SDI Taxes is one of these new concepts for many, and more so if you live in specific states. Although they have a simple explanation, there are few states where they are applied, so their lack of knowledge is understandable.
What is the SDI Tax about?
The SDI Tax is a tax designed for disability insurance. It is a state tax, so it is not levied by all states in the country, only by some.
SDI is insurance dedicated to financially assisting all employees or workers who, due to certain illnesses, conditions or accidents, begin to suffer from a physical or mental illness.
They can access this help when this temporary or permanent disability does not allow them to continue working because otherwise, they could be without income by not having the possibility to work and generate their own.
This tax is paid not by the employers but by the employees. Although the employer deducts it from their paycheck, unlike FICA taxes, the employer does not have to pay out of pocket to the State. It is only the employee who pays.
In which states is the tax due, and how much is it?
The SDI tax refers to disability insurance, as stated above. For this reason, we can find it under other names even if it is practically the same tax with the same qualities.
Since it is a state tax, it does not have a single rate for all the states where it is applied. On the contrary, each State has its rate different from the other. They are not very variable, but they are different.
California is the only State on this list where the SDI tax bears the SDI. The defined rate for this tax is 1% of salary before deductions.
The annual amount is capped at a maximum of $1,229.09 per employee. If your salary is quite high and exceeds that amount of deductions, there is nothing to do because it can only go up to that maximum.
In Hawaii, the employer can either cover the SDI tax expense or choose to deduct it from their employees’ paychecks. It is solely up to your personal choice. If they choose to deduct it, the rate is 0.5% of the weekly taxable salary.
Like in California, there is a maximum limit, but this time, it is $5.60. In addition, in Hawaii, as in the other states, except for California, the tax is called TDI, temporary disability insurance with the same functions.
New Jersey has one of the lowest rates of all the states where this tax applies. The rate is 0.26% of the initial salary before deductions and withholding.
It has limitations regarding the salary on which this tax can be applied without an annual salary of $134,900. Therefore, you can deduct only $350.74 from the employee’s yearly salary.
In New York, just like in Hawaii, employers can decide on their own to cover the TDI tax expense (the same SDI), and in case they decide not to do so, they must deduct it directly from the employee’s pay.
To deduct the tax from their employees’ pay, they must withhold 0.5% of the salary. They are reaching a rather low annual cap of just $31.20.
In Rhode Island, the SDI deduction, while the same as most states, is handled under TDI, works slightly differently. Here, the rate is relatively high, 1.3%.
However, it applies only for the first $74,000 salary earned and only if the employee is over 15 years of age. If younger, it does not apply to the tax.
Just like in Rhode Island, in Puerto Rico, it only applies to the first part of the salary, but on this occasion, it is much lower, the first $9,000 earned in the current year.
That is, from January 1 or the date of commencement of employment during that year, up to the total amount earned of $9,000, the employee must pay SDI tax. After that annual amount, they are no longer liable.
In addition, unlike the other states on this list, the employee and the employer must pay 0.60% of the total salary in Puerto Rico. While in other states, the employer’s monetary participation is optional, in Puerto Rico, it is mandatory.
Is SDI only for the disabled?
Although the original idea of SDI was only for people with disabilities, it has been changing in other ways. There are several conditions under which a person can qualify for disability insurance.
Unemployed people still looking for a job and have not been able to find one yet can also benefit temporarily from this insurance.
Those who are on family leave are also eligible. They can take advantage of SDI when they must leave their job to care for a sick family member or spend quality time with their newborn child.
When the employee or an immediate family member suffers from Covid -19 and cannot work, they can also obtain disability insurance benefits.
For all the cases mentioned above, a prior evaluation is required to confirm the veracity of the situation to resort to social disability insurance. It must be within the states mentioned above.