New York State Disability Insurance (NYSDI) provides temporary benefits to employees unable to work due to non-work-related injuries or illnesses. Understanding its impact on paychecks and tax reporting is essential for employers and employees, as it influences financial planning and compliance with state regulations. Key areas to explore include coverage requirements, employee contribution rates, and tax implications.
Coverage Requirements
New York State mandates most private-sector employers to provide disability benefits to their employees under the New York Workers’ Compensation Law, Article 9. This applies once an employer has had one or more employees on each of at least 30 days in any calendar year; the employer becomes covered after four weeks following the 30th day. 1Workers’ Compensation Board. Is Disability and Paid Family Leave Benefits Coverage Required?
Eligible employees include private-sector workers, excluding government employees, railroad workers, and maritime trades. Domestic workers are covered if employed 20 or more hours per week by the same employer and they work 30 or more days in a calendar year. 2Workers’ Compensation Board. Household Employers (Employers of Domestic Workers)
NYSDI benefits offer partial wage replacement, typically 50% of an employee’s average weekly wage, capped at $170 per week. 3Workers’ Compensation Board. What Are Disability Benefits?
Employers can opt to enhance benefits through private insurance carriers, providing higher amounts or longer coverage durations.
Employee Contribution Rates
As of 2025, an employer may withhold up to 0.5% of an employee’s wages, capped at $0.60 per week, to offset the cost of NYSDI coverage; employers are allowed to pay this cost themselves instead of deducting from employees. 4Workers’ Compensation Board. Introduction to the Disability Benefits Law
Employers may choose to cover the cost themselves, which can improve employee satisfaction and retention. Covering this cost demonstrates a commitment to employee welfare and may provide a competitive advantage in attracting talent.
Tax Treatment
For federal income tax, NYSDI benefit taxability depends on who paid the premium: amounts attributable to employer-paid or pre-tax premiums are taxable, while amounts attributable to employee-paid, after-tax premiums are not. 5Internal Revenue Service. Life Insurance & Disability Insurance Proceeds
Benefits paid by the employer or insurance carrier are subject to Social Security and Medicare taxes. 6Workers’ Compensation Board. Employee Eligibility / Benefits
W-2 Reporting
On the W-2 form, employee contributions to state disability insurance (including NYSDI/PFL premiums) are typically listed in Box 14—Other, labeled accordingly. These entries do not reduce the amount reported in Box 1 (federal taxable wages). 7Internal Revenue Service. General Instructions for Forms W-2 and W-3 (Box 14)
Refunds or Overpayments
Overpayments can occur when contributions exceed the legal cap, often due to administrative errors or changes in employment. Employees should monitor pay stubs and W-2 forms to ensure contributions align with state-mandated limits.
In cases of overpayment, employees are entitled to a refund. The process involves notifying the employer, who verifies the overpayment and issues the refund through the payroll system. Retaining documentation can expedite resolution. Refunds are typically issued as direct payments to employees.
Employers must maintain accurate payroll records to prevent overpayments and ensure contributions comply with statutory caps. Adjusting payroll systems to flag excess contributions helps avoid errors and demonstrates a commitment to accurate financial management while fostering employee trust.