Most California SDI disability payments are not taxable income

California State Disability Insurance (SDI) payments are generally not subject to federal income tax. This is true whether you receive Temporary Disability Insurance (TDI) for a short-term illness or injury, or Permanent Disability Insurance (PDI) for a longer-term condition. The IRS treats SDI as a form of insurance benefit rather than wages or earned income.

However, the tax treatment can change depending on your total income for the year and whether you receive other types of benefits at the same time. A small number of people in specific situations may owe taxes on part of their SDI payments, so it is worth understanding when that happens and how to prepare.

Key Takeaways

  • California SDI payments are not taxable as federal income in most cases, and the state of California does not tax them either.
  • If you also receive Social Security benefits, part of your SDI payment could push you into a tax bracket where some of your Social Security becomes taxable.
  • You will not receive a 1099 form for SDI payments, but you should still report the income on your tax return if you are required to file one.
  • If you have questions about your specific tax situation, the IRS and California Franchise Tax Board both offer free resources, and a tax professional can review your case.

When SDI payments stay tax-free

The vast majority of people who receive SDI do not owe federal tax on those payments. SDI is classified by the IRS as an insurance benefit, similar to workers' compensation. Because you and your employer both contributed to the SDI fund through payroll deductions while you were working, the payments you receive are considered a return of your own money, not new income.

California also does not tax SDI payments as state income. This means you will not see SDI withheld on your payment stub, and you will not receive a 1099 form (the form used to report taxable income to the IRS). If SDI is your only source of income during the year, you typically will not owe any tax on it.

The exception: SDI and Social Security together

The one situation where SDI can affect your taxes is if you are also receiving Social Security benefits. SDI itself remains tax-free, but receiving both at the same time can change how much of your Social Security is taxable.

The IRS uses a formula called "combined income" to determine whether your Social Security is taxable. Combined income includes your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits. If your combined income exceeds certain thresholds ($25,000 for single filers, $32,000 for married filing jointly), part of your Social Security becomes taxable. SDI payments count toward that combined income calculation, even though the SDI itself is not taxable.

For example, if you receive $1,200 per month in SDI and $800 per month in Social Security, the SDI counts toward your combined income threshold, which could push you over the limit and make some of your Social Security taxable. This is a real but uncommon situation—most people on SDI are not yet old enough to receive Social Security—but it is important to know if it applies to you.

What to do at tax time

Even though SDI is not taxable, you should still report it on your federal tax return if you are required to file one. You will not receive a 1099 form for SDI, so you will need to list it yourself. Report the total SDI you received during the year in the income section of your return, then note that it is nontaxable.

If you also received Social Security, you will receive a SSA-1099 form showing your benefits. Use that form along with your SDI amount to calculate your combined income and determine whether any of your Social Security is taxable. The Social Security Administration's website has a worksheet to help you do this calculation, or a tax professional can walk you through it.

For California state taxes, you do not need to report SDI at all. California does not tax SDI payments, so you can exclude them from your state return entirely.

How to find your total SDI for the year

You can find the total amount of SDI you received during the year by logging into your SDI account on the California Employment Development Department (EDD) website. The EDD also mails an annual statement to people who received benefits, though this statement is informational only and not a tax form.

If you received SDI through a private plan (some employers offer supplemental disability insurance), that payment may have different tax rules. Check with your employer's benefits department or the plan administrator to confirm whether that income is taxable.

Reporting SDI on your return without a 1099

Because you will not receive a 1099 form for SDI, you will need to manually enter it on your tax return. On the federal return, this typically goes in the "other income" section. Write "SDI" next to the amount and note that it is nontaxable. If you are using tax software, it will usually have a field for nontaxable income where you can enter this amount.

Keep your own records of the SDI you received—bank statements, EDD letters, or your online account history all work. If the IRS ever questions your return, you will want proof of how much you received and when.

Frequently Asked Questions

Do I have to file a tax return if SDI is my only income?

That depends on how much you received and your filing status. The IRS sets a minimum income threshold each year below which you do not have to file. For 2024, a single person under 65 does not have to file if their income is under $14,600. However, filing can sometimes benefit you—for example, if you paid taxes through another job earlier in the year, you might get a refund. Check the IRS website for your specific situation.

Will the EDD send me a tax form for my SDI payments?

No. The EDD does not issue a 1099 form for SDI because the payments are not taxable income. You will receive an informational statement showing what you were paid, but this is not a tax document. You will need to report the SDI amount yourself on your federal return.

What if I received SDI and unemployment benefits in the same year?

Unemployment benefits are taxable, but SDI is not. You will receive a 1099-G form for the unemployment benefits showing the taxable amount. Report that on your return. Report your SDI separately as nontaxable income. Both count toward your combined income if you also receive Social Security.

Can I deduct medical expenses related to my disability?

Medical expenses are deductible only if you itemize deductions on your federal return and your total medical expenses exceed a certain percentage of your adjusted gross income (currently 7.5%). Because SDI is nontaxable, it does not reduce your adjusted gross income, so it does not help you reach that threshold. Talk to a tax professional about whether itemizing makes sense for your situation.

Should I have taxes withheld from my SDI payments?

No. Because SDI is not taxable, the EDD does not offer tax withholding on these payments. If you are concerned about owing taxes on other income, you can make estimated tax payments to the IRS throughout the year, but you cannot have them taken from your SDI directly.