On a pay stub or W-2, SDI stands for State Disability Insurance, a mandatory payroll deduction that funds short-term wage replacement when a non-work-related illness, injury, or pregnancy keeps you off the job. Only five states and one territory run these programs: California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico.1Department of Labor. Temporary Disability Insurance The deduction is usually between 0.5% and 1.3% of your wages, and at tax time it can matter in two separate ways: whether you can deduct what was withheld, and whether the benefits you eventually receive are taxable.
What the Deduction Pays For
SDI pays a percentage of your regular wages while you recover from a medical condition that isn’t job-related. That covers surgery recovery, serious illness, pregnancy and childbirth complications, and mental health conditions that make work impossible. Most state programs also fold Paid Family Leave into the same fund, covering time off to bond with a new child or care for a seriously ill family member.2Employment Development Department. State Disability Insurance
The line between SDI and two adjacent programs matters. If you’re hurt at work, that’s workers’ compensation, funded entirely by your employer through a separate system. Unemployment insurance is different again: it requires that you be able and available to work.3Employment Development Department. Unemployment Eligibility Requirements SDI covers the opposite: you have a job, but your body won’t let you do it right now.
You may hear that Washington, Massachusetts, Colorado, Connecticut, Oregon, and other states have “SDI.” They don’t, technically. Those states run Paid Family and Medical Leave programs, which overlap but are structured differently and don’t use the SDI label on paychecks. If your pay stub says SDI, TDI, or DBL, you’re in one of the six traditional programs.
How Much Comes Out of Your Paycheck
The rate and wage base vary sharply by state. For 2026:
- California: 1.3% of all wages, with no annual wage ceiling since the state removed it effective January 1, 2024.4Employment Development Department. Contribution Rates and Benefit Amounts
- Rhode Island: 1.1% on the first $100,000 of wages.5Rhode Island Department of Labor and Training. 2026 Tax Rates for Unemployment Insurance and Temporary Disability Insurance
- New Jersey: employee contributions apply to the first $171,100 in wages.6New Jersey Department of Labor and Workforce Development. New Benefit Rates 2026
- Hawaii: up to 0.5% of weekly wages, capped at $7.50 per week.7Hawaii Department of Labor and Industrial Relations. 2026 Maximum Weekly Wage Base
- New York: 0.5% of wages, but no more than $0.60 per week.8Workers’ Compensation Board. Workers’ Disability Benefits
The spread is enormous. A California worker earning $150,000 pays $1,950 a year for SDI. A New York worker at the same salary pays about $31.
Finding SDI on Your W-2
On your pay stub, the abbreviation depends on your state and payroll provider: CA SDI, NJ TDB, NY DBL, HI TDI, or RI TDI. They all point to the same category of mandatory disability insurance.
At tax time, employers report SDI withholdings in Box 14 of your W-2. Box 14 is a catch-all for informational items and the employer picks the label, so you might see CASDI, SDI, NJ TDI, or something similar.9Internal Revenue Service. Form W-2 Wage and Tax Statement 2026 The dollar figure next to that label is what you’d use if you claim it on Schedule A.
Can You Deduct SDI on Your Federal Return?
Yes, but only if you itemize. The IRS treats mandatory contributions to state disability funds the same way it treats state income taxes, so they go on Schedule A as part of the State and Local Tax deduction.10Internal Revenue Service. Topic No. 503, Deductible Taxes The Schedule A instructions specifically list the nonoccupational disability funds of California, New Jersey, and New York, along with the Rhode Island Temporary Disability Benefit Fund and the Washington State Supplemental Workmen’s Compensation Fund, as qualifying contributions.11Internal Revenue Service. Instructions for Schedule A Form 1040
The SALT cap constrains this. Your combined deduction for state income taxes, sales taxes, property taxes, and mandatory disability contributions is limited to $40,000 per year, or $20,000 if you’re married filing separately. That ceiling phases down at higher incomes: if modified adjusted gross income exceeds roughly $500,000 ($250,000 for married filing separately), the cap shrinks, though it never falls below $10,000. These thresholds adjust for inflation each year.10Internal Revenue Service. Topic No. 503, Deductible Taxes
If you take the standard deduction, which most filers do, your SDI contributions give you no federal tax benefit. You can’t deduct them above the line on Form 1040. The contributions are technically deductible, but only through a route most people don’t take.
Are the Benefits Taxable if You File a Claim?
This is where SDI splits from a straight tax deduction into something more interesting. The IRS rule is simple: if you paid the premiums, the benefits aren’t taxable income. If your employer paid, the benefits are taxable.12Internal Revenue Service. Publication 525, Taxable and Nontaxable Income
In California and Rhode Island, employees fund 100% of SDI contributions, so disability and paid family leave benefits from those states are generally not taxable on your federal return. In New Jersey and Hawaii, employers contribute a share of the cost, which can make some or all of the benefits taxable. In New York, the employer typically bears most of the cost (sometimes through a private insurer), so benefits are commonly taxable there.1Department of Labor. Temporary Disability Insurance
If your benefits are taxable, the state agency or insurer sends you a Form 1099-G showing the total paid during the year.13Employment Development Department. Tax Information Form 1099G Report that on your federal return. If your benefits aren’t taxable, you may still receive the form, but you won’t owe federal tax on those payments. State tax treatment can differ from the federal rules, so check your state’s income tax instructions before filing.
One wrinkle if your employer uses a private plan instead of the state fund: when the employer funds the private plan rather than having you pay the full premium, benefits are generally taxable federally.12Internal Revenue Service. Publication 525, Taxable and Nontaxable Income Check whether your paycheck shows an employee deduction for the disability plan. If it does and you’re funding the full cost, your tax position generally matches what it would be under the state plan.
If You’re Self-Employed
SDI doesn’t come out of self-employment income because there’s no employer running payroll. In California, you can opt in through the Disability Insurance Elective Coverage program, which covers both disability and paid family leave.14Employment Development Department. Disability Insurance Elective Coverage FAQs The 2026 premium is 8.84% of the net profit you reported on your 2024 Schedule SE, with a flat $406.64 annual minimum if your net profit was $4,600 or less.15Employment Development Department. Disability Insurance Elective Coverage Rate Notice and Instructions for Calculating Annual Premiums There’s a six-month waiting period before you can file a claim, so you can’t sign up after you already know you’ll need it.
The Short Version
SDI on your paycheck is a state-run disability insurance premium, funded by you through payroll withholding, that pays wages back to you if you can’t work for medical reasons unrelated to your job. It’s deductible federally only if you itemize, and it fits under the SALT cap along with your other state and local taxes. If you ever collect on it, whether the benefits are taxable depends on who paid the premium, which is why the California and Rhode Island answers (“not taxable”) differ from the New York answer (“usually taxable”). Pull the Box 14 amount off your W-2 when you file, and confirm your state’s own tax treatment separately.