Is California State Disability Income taxable

[LeeM · Accepted solution]

No, per the California State Economic Development Department, if you leave work because of a disability and receive disability benefits, those benefits are not reportable for tax purposes.

However, if you are receiving unemployment benefits, become ill or injured, and begin receiving disability benefits; those Disability benefits are considered a substitute for Unemployment and are reportable for tax purposes up to your Unemployment maximum benefit amount.

According to the IRS, Disability benefits that are considered a substitute for UI are taxable. Federal Tax Regulation Section 1.85-1 states that Disability benefits are considered to be a substitute for Unemployment benefits when paid to an unemployed taxpayer who is not eligible for UI benefits solely because of the disability.

For more information, you can visit the link below: 

http://www.edd.ca.gov/Disability/SDI_FAQ_for_1099G.htm

[grg-ankt]

this means no federal, state, Social security & medicare tax right? 

one doesn't have to show it on Tax return ? 

[SamS1]

Normally taxable disability payments from a 3rd party are reported on a W-2 with box 13 check for third party sick.  You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer: If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that's due to your employer's payments is reported as income.  

You can generally exclude from income payments you receive from qualified long-term care insurance contracts as reimbursement of medical expenses received for personal injury or sickness under an accident and health insurance contract.

If you receive a W-2 for long term or short term disability, no Social Security or Medicare taxes will be withheld.

[grg-ankt]

Thanks Sam,

        So this is for my wife's pregnancy-related leaves.   She received California Short term Disability payment for 5 weeks, and 8 weeks if Family bonding leave payment. 

We received 1099G for PFL, but no 1099G for Disability.  

So I believe we are due Federal tax on PFL payments, but on CA tax. 

I am unaware if any SS or Medicare taxes are needed on it. 

Same question on Short Term Disability payment, since there's no 1099G for it & her employer's W2 doesn't show third party sick in box 13 either.  

[SamS1]

I found this in our knowledge base: California State Disability Insurance (SDI) benefits are generally not taxable, either on a federal level or on a state level.  In fact, they are never taxable, except when considered to be a substitute for unemployment compensation, and when paid to an individual who is ineligible for Unemployment Insurance (UI) benefits only because of the disability.  

You would need to report the 1099G for PFL on your Federal form but not California.  PFL benefits are not subject to California state income tax.  Additionally, no SS or Medicare taxes are due on the benefits received. So you will only need to report the amount on the 1099G for Federal and the rest is tax free.

[grg-ankt]

Thanks, Appreciate your prompt help 🙂 

[Sinii]

Sorry to ask essentially the same question.  So in CA if one received short term disability and was not issued a 1099G then there is nothing to report on the 1040.  So someone's income on the 1040 could essentially suddenly be zero.  Is there anywhere to offer an explanation of this on the 1040?

[DaveF1006]

No, your Disability Insurance (DI) benefits are not reportable for tax purposes. However, if you are receiving Unemployment Insurance (UI) benefits, become unable to work due to a disability, and begin receiving DI benefits, a portion of your DI benefits will be reported for tax purposes. This is found here.

There is not a procedure for offering an explanation on the 1040. 

@Sinii 

[Konsai]

Hi,

I received UI benefits then became sick and switched to received SDI last year for about $4,100. How much tax in % do I owe when file my 1099 this year alone on EDD? Thanks in advance

[MonikaK1]

Whether and how much tax you will owe for tax year 2024 depends on your total taxable income and applicable tax rate. If your income is below the filing threshold for your filing status and you don't have another reason to file, you may not need to file.

California SDI benefits are taxable only if paid as a substitute for unemployment insurance (UI) benefits. This could occur in the situation you described, where you were receiving UI benefits and then became disabled. When SDI benefits are received as a substitute for UI benefits, the SDI is taxable by the federal government but is not taxable by the State of California.

You will only get a Form 1099-G if all or part of your SDI benefits are taxable. If your SDI benefits are taxable and you don’t receive your Form 1099-G by mid-February, you may call EDD at (800) 795-0193 to get another copy.

See this State of California Tax Service Center webpage for more information.

[Konsai]

Thanks so much.