California does not tax SSDI, but state disability insurance (SDI) is taxable

The answer depends on which program paid you. Social Security Disability Insurance (SSDI) is never taxed by California, even though it may be taxed by the federal government. California State Disability Insurance (SDI) — the temporary disability program run by the state — is taxable as ordinary income on your California tax return.

The confusion happens because both programs use the word "disability," but they are separate systems. SSDI is federal. SDI is state-run and covers workers who cannot work due to a non-work-related illness or injury for a limited time. If you received payments from SDI, you owe California state income tax on those amounts.

You will receive a Form 1099-G from the California Employment Development Department (EDD) if you received SDI payments during the year. This form reports the total amount paid to you, and you must include it on your California tax return as income.

Key Takeaways

  • SSDI payments are never taxed by California, regardless of how much you received or your other income.
  • SDI payments are taxed as ordinary income on your California state return, and you will receive a Form 1099-G reporting the amount.
  • You must report SDI income even if you did not owe federal income tax on it, because California has its own tax rules.
  • If you received both SSDI and SDI, only the SDI portion is subject to California state tax.

How to tell which program paid you

Check the documents you received when payments started. SSDI comes from Social Security and the payment stub will say "Social Security Administration" or show "SSDI" clearly. The payment may come from a debit card issued by a Social Security contractor, or by direct deposit to your bank.

SDI comes from the California Employment Development Department. The payment stub or letter will reference "State Disability Insurance" or "SDI." You can also log into your EDD account online or call the EDD at 1-888-209-8124 to confirm which program you received.

Some people receive both programs at the same time — for example, if you were on SDI temporarily and then transitioned to SSDI. In that case, only the SDI portion is taxable in California.

Reporting SDI income on your California tax return

When you file your California Form 540 (the state income tax return), you will report SDI income on the line for "other income" or in the section for unemployment and disability benefits. The exact line depends on which version of the form you use, but the EDD Form 1099-G you receive will direct you to the correct location.

If you use tax software, the program will prompt you to enter the 1099-G information. If you file by hand or with a tax preparer, bring the 1099-G with you so the preparer can enter the amount correctly.

You must report the full amount shown on the 1099-G, even if you believe some of it should not have been paid to you. If you think the amount is wrong, contact the EDD first to request a correction before you file your tax return.

Whether you owe California tax on SDI

Owing tax depends on your total income for the year and your filing status. California has a standard deduction that changes each year. If your total income (including SDI) is below the standard deduction for your status, you will not owe state tax even though you must report the SDI income.

For 2024, the California standard deduction ranges from $4,803 for a single filer to $9,606 for married filing jointly. If you earned less than these amounts in total, you likely will not owe tax, but you may still need to file to claim other credits or to satisfy state requirements.

If your income exceeds the standard deduction, you will owe California income tax on the amount above it, calculated at California's tax rates. California's rates range from 1% to 13.3% depending on your income level.

What happens if you do not report SDI income

The EDD sends a copy of your 1099-G to the California Franchise Tax Board (FTB), the state agency that collects income tax. If you do not report the income on your return, the FTB will likely notice the discrepancy and send you a notice asking you to file or amend your return.

Failing to report income can result in penalties and interest charges on the unpaid tax. The penalty is usually 5% of the unpaid tax per month, up to 25%, plus interest at a rate set by the state each quarter. Filing late is less costly than not filing at all.

If you made an honest mistake, you can file an amended return (Form 540-X) to correct it. The sooner you file the amendment, the lower your penalty will be.

SSDI and California taxes

SSDI is exempt from California state income tax. This applies to all SSDI recipients, regardless of age, income level, or how long you have been receiving benefits. You do not report SSDI on your California tax return.

However, SSDI may still affect your federal taxes. Depending on your total income, some of your SSDI may be taxable at the federal level. This is separate from California state tax. You will receive a Form SSA-1099 from Social Security showing your SSDI payments, which you use for your federal return, not your California return.

Frequently Asked Questions

Do I have to file a California tax return if I only received SDI?

If your SDI income is below California's standard deduction for your filing status, you are not required to file. However, if you had taxes withheld from your SDI payments, you may want to file to get a refund. Check your pay stubs to see if any tax was taken out.

Can I deduct medical expenses from my SDI income?

No. SDI is reported as ordinary income, and you cannot reduce it by claiming medical expenses related to your disability. You can only deduct medical expenses if you itemize deductions on your federal return and meet the federal threshold, which is high. This does not explore to your California state return.

What if I received SDI in one year but SSDI in another?

Report each year separately. In the year you received SDI, report it as income on your California return. In the year you received only SSDI, you do not report it. Keep your 1099-G forms organized by year so you can match them to the correct tax return.

Does receiving SDI affect my SSDI benefits?

No. SDI and SSDI are separate programs with different rules. Receiving SDI does not reduce your SSDI payment, and SSDI does not reduce SDI. However, if you are receiving both at the same time, report both correctly on your tax returns — SDI on your California return and SSDI on your federal return only.

Where do I send my California tax return if I owe tax on SDI?

Mail your Form 540 and any supporting documents to the California Franchise Tax Board at the address shown in the tax return instructions, or file electronically through the FTB website or approved tax software. If you owe tax, you can pay online, by mail, or through an installment plan if you cannot pay in full.