State Disability Insurance Law and Legal Definition

State disability insurance (SDI) is a state-established compensation plan for the support of employees unable to work due to an illness or injury. Some states require employee and employer (EE/ER) contributions to a disability insurance fund for payment of SDI benefits. Through payroll taxes, employees pay SDI premiums. Self-employed persons may participate by enrolling in elective coverage and pay premiums based on IRS quarterly reporting.

Currently, there are only five states that provide state disability programs, California, Hawaii, New Jersey, New York, Rhode Island and the Commonwealth of Puerto Rico. Each state or Commonwealth governs how its program is structured.