Each year, thousands of HR managers and finance professionals struggle to untangle the web of state-specific payroll requirements that come with employing people in New York.

State Disability Insurance (SDI) is just one of many payroll requirements that employers in New York must manage. And there’s a lot to consider—from distinguishing SDI from PFL to calculating the correct withholding amounts to ensuring all required taxes are covered for your team. Get things wrong and you could face compliance violations and unexpected penalties.

The good news is that with the right knowledge and support, SDI mistakes are easily avoidable.

At Deel, we've helped thousands of companies streamline their payroll processes through our US payroll and PEO services.

In this guide, we'll break down everything you need to know about NY SDI tax in clear, actionable terms. Read on to discover how to navigate NY SDI with confidence.

What is SDI tax in New York?

New York State Disability Insurance (SDI) is a mandatory short-term disability insurance program that provides temporary cash benefits to eligible employees who become unable to work due to a non-work-related illness, injury, or pregnancy-related disability.

This program was established under the New York Disability Benefits Law. It is used to provide income to workers who temporarily cannot perform their job duties due to medical conditions that aren't covered by workers' compensation (which only addresses work-related injuries and illnesses).

The program is primarily funded through payroll deductions from employees’ wages, though employers can opt to cover the costs themselves. It’s important to note that, unlike some voluntary benefits, NY SDI is a statutory requirement for most employers operating in the state and must be covered during payroll.

Is SDI mandatory in New York?

Yes, NY SDI is mandatory for most employers with one or more employees who have worked for at least 30 days in New York State. This includes:

• For-profit businesses
• Non-profit organizations
• Household employers who employ domestic workers for at least 40 hours per week

Employers must either:

• Purchase a disability benefits insurance policy from a state-authorized insurance carrier
• Self-insure by applying to the Workers' Compensation Board for approval
• Join a state-approved plan through a third-party administrator

If your business fails to cover SDI, you’re likely to face serious penalties, including fines of up to $500 per employee and potential liability for any payments that would’ve been made to eligible employees.

Calculating NY SDI contributions

NY SDI requires a flat $0.60 weekly contribution per employee, with benefits capped at $170 weekly for up to 26 weeks. Despite this low contribution rate (which has remained unchanged for years), it's crucial that it is properly managed to ensure compliance. Here's what you need to know about the financial aspects of NY SDI.

How much is New York SDI tax?

As of 2025, the NY SDI contribution rate is computed at 0.5% of the employee's weekly wages, but capped at $0.60 per week. This rate has remained unchanged for several years, making it one of the more predictable aspects of New York payroll compliance. However, that’s not to say it won’t change in the future.

As an employer, you have a choice on how to contribute. You can either deduct this amount from employee wages or cover the cost yourself as an employee benefit. Remember that if you opt to deduct the contribution, you cannot take more than $0.60 per week, regardless of an employee's earnings.

We recommend keeping an eye on the New York State Workers’ Compensation Board for the most up-to-date rates.

What is the NY SDI limit?

Eligible employees can currently receive NY SDI benefits of 50% of their average weekly wage, up to a maximum benefit of $170 per week. This benefit cap has remained unchanged since 1989, making it notably lower than many other state disability programs.

These SDI benefits can be paid for a maximum of 26 weeks during any 52-consecutive-week period. There is also a seven-day waiting period before benefits begin, meaning benefits are not payable for the first seven days of disability unless the disability extends beyond 14 days, in which case benefits may be paid retroactively.

How is SDI calculated?

NY SDI benefits are calculated based on an employee's average weekly wage. The formula is:

1. Determine the employee's average weekly wage (based on the eight weeks immediately preceding the disability)
2. Calculate 50% of this average weekly wage
3. Cap the benefit at the maximum of $170 per week, if necessary

For example:

• Scenario A: An employee earning $300 per week would receive a benefit of $150 per week (50% of $300)
• Scenario B: An employee earning $500 per week would receive $170 per week (50% of $500 = $250, but capped at the maximum benefit of $170)

For part-time employees or those with irregular schedules, the calculation uses the actual wages earned during the qualifying period divided by the number of weeks worked.

Responsibilities and coverage for NY SDI

Let’s run through key details you need to know about who pays for and who is eligible for SDI.

Who pays for New York State Disability Insurance?

Who pays for the NY SDI depends on your organization. Here are the options:

• Employee-funded: Employers can deduct the full contribution of $0.60 per week from employee wages

• Employer-funded: Employers may choose to cover the cost themselves rather than deducting it from employee pay

• Shared arrangement: Some employers implement a shared contribution structure, though this is less common due to the low statutory amount

Regardless of who pays, as an employer, you must:

• Ensure timely and accurate collection of contributions
• Maintain proper employee records
• Remit contributions to the insurance carrier
• File appropriate reports with state authorities
• Provide employees with information about their disability benefits rights

Who is covered by NY SDI?

Generally speaking, NY SDI covers employees who:

• Work for a covered employer in New York State
• Have completed at least four consecutive weeks of employment (or 25 days for part-time employees)

NY SDI coverage includes full-time, part-time, and seasonal employees as long as they meet the work duration requirements. For employees who change jobs between covered employers, coverage can transfer without the need to reestablish the four-week qualification period.

It’s important to remember that independent contractors are not considered employees under the law and therefore aren’t covered by the NY SDI program. However, proper worker classification is absolutely critical here, as misclassifying employees as independent contractors can lead to significant penalties.

Who is exempt from SDI?

There are several groups of employees who are exempt from mandatory SDI coverage in New York.

Do you get back pay for SDI?

NY SDI benefits are not payable for the first seven days of disability (the waiting period). However, if the disability continues beyond 14 days, benefits can be paid retroactively to cover the initial waiting period.

To receive back pay, eligible employees must:

1. Submit their claim within 30 days of becoming unable to work
2. Ensure the disability has been certified by a qualified healthcare professional

Claims can be submitted using form DB-450.

Tax considerations for employees receiving NY SDI

NY SDI benefits have specific tax implications that differ from regular wages. Benefits are exempt from NY state tax but may be federally taxable, while contributions are made with after-tax dollars. As an employer, you must properly report these transactions to ensure compliance with local tax regulations.

Where does SDI go on a tax return?

For employers:

• NY SDI contributions appear as a specific line item on employee pay stubs, typically labeled as "NY Disability" or "NY DBL"

• Employer contributions are generally deductible as a business expense

• Employers report disability information on quarterly returns to the insurance carrier or state fund

For employees:

• Employee contributions are post-tax deductions (not tax-deferred like 401(k) contributions)

• SDI benefits received are reported to recipients on Form 1099-G (for state-paid benefits) or a similar statement from private insurers

• There is no specific line on federal tax returns exclusively for SDI contributions

Do employees have to include SDI on their taxes?

The tax treatment of NY SDI follows these specific rules:

• Contributions: Employee contributions to NY SDI are made with after-tax dollars and aren’t tax-deductible on federal income tax returns

• Benefits received: NY SDI benefits are generally not subject to New York State income tax

• Federal taxation: SDI benefits may be subject to federal income tax if the employee's total income exceeds certain thresholds or if the employer paid the SDI premiums

Is SDI considered “earned income”?

No, SDI is generally not considered “earned income”, as they are a form of wage replacement, not direct compensation for work performed.

For tax and benefit eligibility purposes:

• Earned income refers to wages, salaries, tips, and other compensation received for active work performed
• Unearned income includes disability benefits, which represent the replacement of income rather than compensation for services rendered

This distinction between earned and unearned income is important when considering various tax credits (like the Earned Income Tax Credit) and benefit programs that have different rules for earned versus unearned income.

Are SDI and PFL the same?

No, New York State Disability Insurance (SDI) and Paid Family Leave (PFL) are two distinct programs with different purposes, though they are often provided together. Here's how they compare:

Streamline your NY SDI compliance with Deel

For employers operating in New York State, understanding your SDI responsibilities is absolutely crucial. Potential penalties for non-compliance are costly and time-consuming to deal with, so it’s essential to get it right in the first place.

For growing businesses, particularly those with multi-state operations, keeping up with state-specific requirements like State Disability Insurance alongside Paid Family Leave regulations can become increasingly complex. This is where comprehensive payroll solutions step in.

Deel's US Payroll and Deel PEO services handle state-specific requirements automatically, ensuring your business stays compliant while giving your team more time to focus on your main business priorities. Our platform manages everything from calculating the correct withholdings to filing the necessary documentation, all while providing transparent reporting for your peace of mind.

Ready to simplify your New York payroll compliance? Book a demo with Deel today and discover how our solutions can streamline your HR and payroll operations.