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What is the SDI tax?

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Everything You Need to Know About the SDI Tax

Have you ever looked at a pay stub and noticed that a certain amount of money was withheld for the SDI tax? This is a relatively common tax that has a very important function. If you’re new to figuring out payroll details, the SDI tax can sound a bit complicated. However, this tax will be much easier to understand once you have a bit of background.

What Is the SDI Tax?

SDI stands for state disability insurance tax. This is a tax that is required for all employees in states that have disability insurance programs. The money goes directly into a fund that pays for the state’s disability insurance. If an employee cannot work because of a physical or mental disability, the SDI tax fund will provide them with assistance. The tax also goes toward paid family leave benefits. These benefits kick in when an employee needs to leave work to care for an ill family member or bond with their new child. The tax funds will help cover the loss of employment.

Many states have an SDI tax, but not all of them call it this. Some states instead call the tax TDI. This stands for temporary disability insurance, but it functions about the same. Your work may withhold taxes for SDI or TDI if you live or work in one of these states:

  • California
  • Hawaii
  • New Jersey
  • New York
  • Rhode Island

How Much Is the SDI Tax Rate?

The rate you pay will depend on your state and the current tax rates for the region. Typically, the tax rate is somewhere around the range of 0.25% to 1.5%. In most states, there is a maximum possible amount of SDI tax. Only a set amount of wages an employee makes can be taxed. After an employee has made this maximum rate in a year, the rest of their earned wages are not subject to the tax. Once an employee pays somewhere between $1,000 and $2,000, they do not have to pay any more SDI tax for the year.

How Do You Calculate It?

Since SDI tax rates change so much, you need to keep up with current regulations for your state. To calculate the tax for a pay period, you’ll need to multiply the amount of taxable pay by the percent rate for your state. You’ll then divide this number by 100 to get the amount of tax that an employee owes for the pay period. Depending on how the employee is paid, you may need to calculate the tax on a weekly, biweekly, monthly or quarterly rate.

Who Has to Pay?

To put it simply, employers do not pay SDI tax while employees do. However, in the business world, not everyone can easily be divided into employers and employees. Those who are self-employed are technically both an employer and an employee. They are not required to pay the tax, but they can opt into various state insurance programs if they want disability coverage. If a person employs others on behalf of someone else, they still count as an employee for the purpose of the tax.

Dealing with SDI tax does not have to be complicated or confusing. Do you need more help managing your employees and your business? TimeForge streamlines essential tasks like scheduling, human resources, and team communication. Our labor management software also integrates with payroll and human resources. That means you can address many tax-related details from a single hub.

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