State Disability Insurance (SDI): What It Is and How It Affects Your Paycheck (2026)

Published September 15, 2026 · 8 min read

You scan your pay stub and spot a line you don’t recognize: CASDI, SDI, TDI, or NJ FLI. A few dollars are coming out of every paycheck, and nobody explained why. This guide answers that question completely — what state disability insurance is, which states require it, how much it costs, and what benefit you get in return.

The short version: State Disability Insurance (SDI) is a mandatory payroll deduction in about half a dozen states that funds short-term disability benefits. If you get sick, injured, or pregnant and can’t work, SDI replaces a portion of your lost wages — typically for up to 52 weeks. You pay for this coverage through the deduction on your check, whether you ever use it or not.

What Is State Disability Insurance?

State Disability Insurance is a state-administered insurance program that pays you a weekly benefit if a non-work-related illness, injury, pregnancy, or childbirth leaves you unable to work. (Injuries that happen at work are covered by workers’ compensation instead.)

SDI is funded by employee payroll deductions, employer contributions, or both — depending on the state. The deduction is automatic; you do not choose whether to participate. In exchange, you have coverage the moment you start work in that state.

SDI is separate from Social Security Disability Insurance (SSDI), which is a federal program for long-term disabilities. SDI covers short-term events — typically a few weeks to one year — and the process for claiming it is entirely through your state. (U.S. Department of Labor — Paid Leave)

Which States Require SDI Deductions?

As of 2026, the following states require SDI or equivalent payroll deductions. Most states also bundle Paid Family Leave (PFL) — time off to bond with a new child or care for a seriously ill family member — into the same contribution.

Rates for 2026 are approximate. States update them annually. Always verify current rates with your state’s labor or employment department.

If you live in any other state, you will not see an SDI deduction on your paycheck. Those states may have voluntary disability programs or rely on employer-provided short-term disability policies, but nothing is taken from your wages automatically.

California SDI: The Largest State Program

California’s SDI program, run by the Employment Development Department (EDD), is the largest state disability program in the country and the one most workers encounter. On your California pay stub it appears as CASDI.

Starting January 1, 2024, California removed the annual wage cap on SDI contributions. Previously, SDI only applied to the first ~$153,000 in wages. Now, all wages are subject to the 1.1% SDI rate with no upper limit. This change significantly increased the deduction for high earners.

In exchange for removing the cap, California also increased the maximum benefit. Starting in 2025, higher-wage workers receive a benefit closer to their actual pre-disability income (up to 90% of wages for lower earners, 70% for higher earners). (California EDD — SDI Provisions)

Worked Example: California Worker at $65,000

Let’s see exactly how California SDI affects a typical paycheck. Our example: a California employee earning $65,000 per year, paid biweekly (26 paychecks per year).

The SDI deduction of $27.50 per biweekly paycheck adds up to $715 per year. That’s about 1.1% of gross pay — a relatively small deduction compared to federal income tax or FICA, but it buys meaningful insurance coverage that would otherwise cost far more if purchased privately.

For a high earner in California making $200,000 per year, the SDI deduction is now $2,200 per year — more than four times what it was before the 2024 cap removal.

What Benefits Do You Get in Return?

In exchange for your SDI contributions, you gain the right to claim benefits if a non-work-related disability leaves you unable to perform your normal job duties. The details vary by state, but the general structure is:

• Waiting period: Most states have a 7-day waiting period (unpaid) before benefits begin. California eliminated its waiting period for claims after January 1, 2025.
• Benefit amount: Typically 60–90% of your average weekly wages, subject to a state maximum. California’s maximum weekly benefit in 2026 is approximately $1,681. New Jersey’s is around $1,217/week.
• Benefit duration: Up to 52 weeks for most conditions in California. Up to 26 weeks in New Jersey and Rhode Island.
• Qualifying events: Your own non-work illness, injury, or pregnancy/childbirth. Most states also include Paid Family Leave for bonding with a new child or caring for a seriously ill family member.

To illustrate the value: if that $65,000/year California worker becomes seriously ill and can’t work for 12 weeks, they could receive approximately $14,861 in SDI benefits ($65,000 / 52 weeks × 70% benefit rate × 12 weeks). They paid $715/year for this coverage. That is an extraordinary return on a $715 annual contribution.

SDI vs. Social Security Disability (SSDI): Key Differences

Many workers confuse state SDI with the federal SSDI program. They are entirely separate. Here’s how they compare:

If a serious illness lasts more than a year, you could receive state SDI benefits while your SSDI application is pending, then transition to SSDI once it is approved. The two programs are designed to work together. (SSA.gov — Social Security Disability Insurance)

Are SDI Contributions Tax Deductible?

This is where it gets nuanced. SDI contributions are not deductible from your federal income tax in the traditional sense. However, they are included in the deduction for state and local taxes (SALT) on Schedule A, if you itemize.

For most workers, who take the standard deduction ($15,000 for single filers in 2026), SDI contributions provide no direct federal tax benefit. The deduction is simply taken from your gross pay, reducing your take-home amount.

There is one important exception: SDI contributions are not subject to FICA taxes (Social Security and Medicare). They are taken from your gross wages, but FICA is calculated on wages before the SDI deduction is applied — so SDI does not reduce your FICA bill. Think of it as a separate line item, not a pre-tax benefit like a 401(k). (IRS — Topic No. 502: Medical and Dental Expenses)

Are SDI Benefits Taxable When You Receive Them?

The taxability of SDI benefits depends on who paid the premiums and whether those premiums were paid pre-tax or post-tax:

• State SDI programs (employee-funded with after-tax dollars): Benefits are generally not federally taxable because you paid premiums with after-tax money. This applies to California, New Jersey, Rhode Island, and most other state SDI programs.
• Employer-funded or employer-paid disability: If your employer pays the premium, benefits are fully taxable as ordinary income.
• Mixed funding: If you paid some premiums with pre-tax dollars (for example, through a Section 125 cafeteria plan), a proportional share of the benefits is taxable.

For California SDI specifically: the contributions come from your after-tax wages, so California SDI benefits are generally not taxable federally. However, they may be taxable at the state level in some circumstances. Always consult IRS Publication 525 for the full rules. (IRS Publication 525 — Taxable and Nontaxable Income)

New Jersey TDI and FLI: Two Separate Deductions

New Jersey workers may see two separate deductions on their pay stub: NJ TDI (Temporary Disability Insurance) and NJ FLI (Family Leave Insurance). These are separate programs funded by separate contributions.

• NJ TDI: Covers your own non-work illness or injury. Administered by the NJ Division of Temporary Disability and Family Leave Insurance.
• NJ FLI: Covers paid leave to bond with a new child or care for a seriously ill family member. Benefits can be up to 12 weeks per year.

The combined employee contribution is around 0.23% of wages up to approximately $163,000 in 2026, for a maximum annual employee contribution of about $375. Given that NJ TDI pays up to $1,217 per week in 2026 for up to 26 weeks, this is an excellent value.

What If You Work Remotely for a Company in a State With SDI?

SDI deductions are based on where you perform the work, not where your employer is headquartered. If you live and work in Texas (which has no SDI), your employer cannot withhold California SDI from your paycheck — even if the company is based in California.

Conversely, if you work remotely from California for a company headquartered in Texas, you generally will have California SDI withheld, because you are working in California. The same rules that govern state income tax residency apply to SDI. This is one reason why where you physically work matters so much for payroll.

Remote workers who move between states mid-year may see their SDI situation change when their payroll state changes. Check with your HR or payroll department when you relocate.

The Bottom Line

If you work in California, New Jersey, New York, Rhode Island, Hawaii, Washington, Massachusetts, or Colorado, you will see a small SDI or equivalent deduction on every paycheck. It ranges from less than 1% of wages in some states to 1.1% in California (with no cap), and it buys you short-term disability insurance coverage that would cost far more on the open market.

The deduction is mandatory, not adjustable, and is taken from gross wages with after-tax dollars. Benefits you receive are generally federal income tax-free (since you paid with after-tax money), though state tax rules vary. If you ever face a serious illness, injury, or pregnancy that takes you out of work, your SDI contributions will have been among the best value you ever got out of a paycheck deduction.

Sources

• California EDD — State Disability Insurance
• California EDD — SDI Provisions and Benefit Amounts
• New Jersey Division of Temporary Disability and Family Leave Insurance
• SSA.gov — Social Security Disability Insurance (SSDI)
• U.S. Department of Labor — Paid Leave and Disability
• IRS Publication 525 — Taxable and Nontaxable Income
• IRS — Topic No. 502: Medical and Dental Expenses
• Washington State — Paid Family and Medical Leave