How to Report California State Disability Payments on Taxes

Paid family leave benefits are always subject to federal taxes.
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California provides state disability insurance, or SDI, to employees who are unable to work because of a disability they acquired outside of the workplace. Paid Family Leave, or PFL, is part of the SDI program and is available to employees who must take time off to care for a new child or sick family member. SDI benefits are not taxable unless they are PFL benefits or considered a substitute for unemployment compensation.

When SDI Benefits Are Taxable

Disability benefits are usually not taxable at either the state or federal level. The exception is when the payments are considered a substitute for unemployment benefits, in which case they are taxable at the federal level. This typically occurs when an employee doesn't qualify for unemployment compensation only because of his disability. Another way this can occur is if the employee first received unemployment benefits, then became disabled. PFL benefits are always taxable at the federal level, but not the state.

1099-G Amount Transferred to Tax Return

If any portion of your SDI benefits is taxable, California will send you a 1099-G form with the taxable amount listed in Box 1 - Unemployment Compensation. Where you list this amount on your tax return depends on the form you are filing. For Form 1040, enter the amount on line 19. For Form 1040A, enter the amount on line 13. For Form 1040EZ, enter the amount on line 3. Add your SDI benefits to the rest of the income claimed on your return and write the total in the "Total Income" box, if filing Form 1040 or Form 1040A. If filing Form 1040EZ, write total in the "Taxable Income" box.

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