SDI tax rates for 2026: State-by-state breakdown for employers

How state disability insurance works in 2026

First things first, five states and Puerto Rico operate disability insurance programs that require contributions through a regular payroll tax. These SDI or TDI programs offer temporary wage replacement for non-work-related injuries or illness. We should point out that this is state-mandated insurance, not private or individual disability income insurance.

In the states where SDI is mandatory, payroll compliance comes into play. Businesses that fail to follow its specific requirements can face significant penalties.

There is no national SDI rate — rates vary by the states that offer it, with California coming in the highest at 1.3% for 2026. California State Disability Insurance (CASDI) is a benefits program that’s mandatory for all California businesses. SDI tax rates are different from state unemployment insurance or SUI tax rates.

Now that we have a better understanding of the basics, let’s take a closer look at the jurisdictions where SDI needs to be on a business’s to-do list.

Which states require SDI

The five states that require SDI are California, Hawaii, New Jersey, New York, and Rhode Island. It is also mandatory in Puerto Rico.

It is generally called SDI in California and New York and TDI in other states. While funding rules vary by state, most programs are supported by employee contributions, employer contributions, or a combination of both.

2026 SDI rates by state

This chart shows the SDI rates by state:

In 2026, the Puerto Rico SDI tax rate is 0.6% and split equally between the employer and the employee. It is applied to the first $9,000 of annual wages paid to an employee.

Several other states offer Paid Family and Medical Leave (PFML) programs, which can include overlapping benefits. The Family and Medical Leave Act is a federal law that gives eligible employees up to 12 weeks of unpaid leave for family and medical reasons.

*Hawaii’s 2026 weekly taxable wage base for Temporary Disability Insurance (TDI) is $1,500.21. The maximum weekly benefit is $871. Employers may deduct up to 0.5% of an employee’s weekly wages, capped at $7.50 per week. Employers are responsible for the remaining premium cost.

Moving on, let’s see where the funding comes from to keep these programs up and running.

Who pays SDI and which wages are taxable

As a general rule, employees pay for SDI through payroll deductions. The benefits they receive are typically not taxable at the state or federal level.

Here are SDI tax rules from state to state:

• In California, SDI is funded through a mandatory payroll tax that is automatically withheld from employee wages. Employers are responsible for withholding the correct amount and submitting it to the state agency
• Businesses in Hawaii have the option to cover the entire cost or split it with employees, who contribute via payroll deductions. In the Aloha State, TDI is funded through self-insured plans or private carriers, and employee contributions are capped at 0.5% of wages
• In New Jersey, workers contribute 0.19% of the first $171,000 in covered wages earned during the 2026 calendar year. The maximum worker contribution for 2026 is $325.09. The employer contribution rate varies from 0.10% to 0.75%. can choose between the state plan and private plans, provided they offer similar benefits to the state plan
• New York allows employers to withhold up to $0.60 per week from employees to help offset the cost of required SDI coverage.
• Rhode Island’s TDI is funded solely by employees, who pay 1.1% of their wages into the fund. Employers are responsible for paying these withholdings quarterly to the Rhode Island Department of Labor and Training
• Finally, in Puerto Rico, disability insurance is funded by both employers and employees, who each pay 0.3% of an employee’s first $9,000 in wages for a total contribution of 0.6%

If you do business in any of these states or in Puerto Rico, to make sure deductions are accurate and timely, you can automate SDI/TDI in your ongoing payroll.

How SDI fits into payroll deductions, PTO, and leave programs

Depending on your state’s SDI funding, your business may be responsible for ensuring correct withholding and reporting on employee pay stubs. It makes sense to incorporate SDI into existing payroll deductions, PTO, and any other leave programs.

SDI and TDI are funded by a small percentage withheld from employee paychecks. It should appear as a line item on employees’ pay stubs and W-2 forms.

Consider these points as well when it comes to SDI, payroll, and other leave programs:

• Generally, workers receiving disability benefits can use their accrued sick leave, vacation, or PTO, in addition to SDI payments, to bring their income up to 100% of normal wages
• However, when they apply for SDI, workers must report if they are being paid by your business so they don’t make more than their regular wages
• The goal of disability payments is to bring workers up to their normal salary. Typically, they can use a combination of SDI, PTO, Paid Family and Medical Leave, and disability benefits