SDI payments are taxable income on your federal return, but California does not tax them

California State Disability Insurance (SDI) payments count as taxable income when you file your federal tax return with the IRS. You must report the full amount you received on line 1 of Form 1040 or Form 1040-SR, under "wages, salaries, tips." California, however, does not tax SDI payments — so you will not owe state tax on them even though you report them federally.

The IRS treats SDI as a wage replacement benefit, which means it is subject to federal income tax. This is different from some other disability programs. Social Security Disability Insurance (SSDI) has its own rules about taxation that depend on your total income. SDI has no such threshold — you report all of it, regardless of how much other income you have.

You will receive a Form 1099-G from the California Employment Development Department (EDD) by January 31 of the year after you received payments. This form shows the total SDI you were paid in the previous calendar year. You use this form to fill out your federal tax return.

Key Takeaways

  • SDI payments must be reported as income on your federal tax return, even if you owe no federal tax.
  • California does not tax SDI, so you do not report it on your state return.
  • The EDD sends you a Form 1099-G by January 31 showing your total SDI for the previous year.
  • You report SDI on line 1 of Form 1040 or 1040-SR as wages, and it may increase the federal tax you owe or reduce your refund.
  • If you did not receive a Form 1099-G but received SDI payments, contact the EDD to request one.

How to report SDI on your federal tax return

Start with your Form 1099-G. The box labeled "Unemployment Compensation" shows your total SDI for the year. Even though the form says "unemployment," SDI disability payments go in this same box because the EDD administers both programs.

On your Form 1040 or 1040-SR, enter the amount from box 1 of your 1099-G on line 1 under "wages, salaries, tips, other compensation." If you use tax software, it will ask you to enter this amount when you report unemployment or disability income. If you file by hand, write the amount directly on the line and attach a copy of your 1099-G to your return.

Report the full amount you received, even if you think you should not owe tax. The IRS will calculate what you owe based on your total income for the year. If your only income was SDI and it was below the standard deduction for your filing status, you may owe no federal tax — but you still must file and report it.

When SDI affects your federal tax bill

SDI payments increase your total income for the year, which can change how much federal tax you owe. If SDI was your only income and the total was below the standard deduction (which varies by age and filing status), you will owe no federal income tax. For 2024, the standard deduction is $14,600 for a single filer under 65 and $23,200 for a married couple filing jointly under 65.

If you have other income — wages from work, self-employment income, interest, or dividends — SDI adds to that total. This can push you into a higher tax bracket or reduce a refund you were expecting. It can also affect whether you must file at all, depending on your total income and filing status.

SDI can also affect tax credits you claim. If you claim the Earned Income Tax Credit (EITC) or the Child Tax Credit, your total income including SDI determines whether you may have access to and how much you receive. Higher income can reduce or eliminate these credits.

What to do if you did not receive a Form 1099-G

The EDD must send you a Form 1099-G by January 31 if you received SDI during the previous calendar year. If you did not receive one by early February, contact the EDD directly. You can call their customer service line or log into your EDD account online to check whether a form was issued.

If the EDD shows that a 1099-G was mailed but you did not receive it, request a duplicate. You will need your Social Security number and the year for which you need the form. The EDD can mail a replacement or, in some cases, provide the information over the phone so you can file without waiting.

Do not file your federal return without reporting your SDI income, even if you have not received the 1099-G. You can file using the amount you know you received and attach a note explaining that the form was not yet received. The IRS will match your return to the 1099-G when the EDD files it, and if the amounts do not match, the IRS will contact you.

SDI and other income sources

If you received both SDI and wages from work during the same year, you report them separately. Your W-2 from your employer shows wages on box 1. Your 1099-G shows SDI. You enter both amounts on line 1 of your Form 1040, and the total becomes your gross income for the year.

If you received SDI and also received unemployment insurance (UI) benefits, both appear on the same 1099-G form. The form may show them in separate boxes or combined. Check the form carefully and report the total of all unemployment and disability payments.

If you have self-employment income from a business or freelance work, that goes on Schedule C, not on line 1. Self-employment income is taxed differently and may require you to pay self-employment tax in addition to income tax. SDI and self-employment income are reported on different parts of your return.

Federal tax withholding and SDI

The EDD does not automatically withhold federal income tax from SDI payments. This means you receive the full amount, but you are responsible for paying the tax when you file your return. If you expect to owe a large amount, you can request that the EDD withhold a percentage of your payments, though this is not common.

To request withholding, contact the EDD and ask about federal tax withholding on your SDI. They can set up a withholding amount, which reduces the payment you receive each week but also reduces what you owe at tax time. This is optional and works the same way as withholding from wages.

If you do not request withholding and you owe federal tax on your SDI, you can pay it when you file your return. If you expect to owe more than $1,000, you may want to make estimated tax payments during the year to avoid a large bill at tax time. The IRS provides Form 1040-ES to help you calculate estimated payments.

Frequently Asked Questions

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

You must file if your SDI income exceeds the standard deduction for your filing status. For 2024, that is $14,600 for a single filer under 65. If your SDI was below that amount, you do not have to file, but you may want to if you are due a refund from taxes withheld from other income or if you claim tax credits.

Will SDI reduce my Social Security benefits?

SDI does not affect Social Security retirement or survivor benefits. If you are receiving SSDI (Social Security Disability Insurance), SDI may affect your SSDI payment because both programs count as income. Contact Social Security directly to understand how SDI affects your specific SSDI case.

Can I deduct medical expenses related to my disability from my SDI income?

No. SDI is reported as gross income, and you cannot reduce it by deducting medical expenses. You can claim medical expenses as an itemized deduction on Schedule A only if your total medical expenses exceed 7.5 percent of your adjusted gross income, which includes your SDI.

What if the amount on my 1099-G is wrong?

Contact the EDD when ready and explain the error. Provide your account number and the dates of the payments you received. The EDD will investigate and issue a corrected 1099-G if needed. You can then file an amended federal return using the correct amount.

Do I report SDI on my California state tax return?

No. California does not tax SDI payments, so you do not report them on your state return. You only report SDI on your federal return to the IRS.