"Disability Insurance (DI) benefits are not reportable for tax purposes except when considered to be a substitute for unemployment compensation when paid to an individual who is ineligible for unemployment insurance (UI) benefits solely because of the disability. Only in this instance, where DI benefits are received in lieu of UI benefits, will the EDD provide the claimant with a 1099G form showing amounts paid which are reportable (no more than the original UI maximum) and forward a copy of the 1099G to the Internal Revenue Service (IRS).
Paid Family Leave (PFL) benefits are reportable for federal purposes but not state tax purposes. The EDD will provide all claimants with a 1099G form and forward a copy of the 1099G to the federal IRS. The PFL benefits are not taxable or reportable to the California State Franchise Tax Board."
From http://www.edd.ca.gov/Disability/FAQ_Employers_Benefits.htm
This information is from California DOR for your review.
California State Disability Insurance (SDI)
SDI provides temporary payments to workers who are unable to perform their usual work because of a pregnancy or a nonoccupational illness or injury. Beginning July 1, 2014, California workers may be eligible to receive Paid Family Leave benefits when taking time off of work to care for a seriously ill parent-in-law, grandparent, grandchild, or sibling. SDI benefits are taxable only if paid as a substitute for unemployment insurance (UI) benefits. This could occur if a person was 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. For more information, see IRS Publication 525, Taxable and Nontaxable Income.
Disability Pensions
Generally, 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 pay for the plan, only the amount you receive for your disability that is due to your employer's payments is reported as income. However, certain payments may not be taxable to you. Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension.
Generally, if you retire on disability, you must report your pension or annuity as income. There is a federal tax credit for people who are permanently and totally disabled. For more information, see IRS publication 524, Credit for the Elderly or the Disabled.
For more information, see IRS Publication 525, Taxable and Nontaxable Income, and IRS Publication 17, Wages, Salaries, and Other Earnings (Chapter 2).
California law is generally the same as federal law. The following are exceptions:
- Social security benefits are not taxable by the State of California. Social security benefits may be taxable by the federal government.
- Railroad sick pay is also not taxable by the State of California. It is taxable by the federal government unless it is a payment for an on the-job-injury.
- A disabled taxpayer who receives SDI as a substitute for unemployment benefits is considered to be receiving unemployment insurance (UI) compensation. This could occur if a taxpayer was receiving UI benefits and then became disabled. Unemployment insurance compensation is taxable by the federal government but is not taxable by the State of California
