Disability Insurance is taxable, right?

January 26, 2014 9:38 AM

I was on California State Disability Insurance (SDI) for a few months in early 2103. My understanding is that this is not taxable as income on my California return. However, I assume it's federally taxable. But confused.

On the CA state website for these things, they write:

According to the IRS, DI benefits that are considered a substitute for Unemployment Insurance (UI) are taxable. Federal Tax Regulation Section 1.85-1 states that DI benefits are considered to be in the nature of unemployment compensation when paid to an unemployed taxpayer who is ineligible for unemployment compensation solely because of the disability.

If you leave work because of a disability and receive disability benefits, those benefits are not taxable. However, if you are receiving unemployment benefits, become disabled, and begin receiving disability benefits; those DI benefits are considered a substitute for UI and are taxable up to your UI maximum benefit amount.

"If you leave work because of a disability and receive disability benefits, those benefits are not taxable." That described me. Am I to read this as "not taxable to the IRS" or as "not taxable to California FTB" ?

Should I be expecting a form 1099G "Report of Taxable Unemployment Compensation Payments" ? I doubt it. Is there some other form I should be expecting?

Thanks

posted by colin_l to Work & Money (4 answers total)

methinks it depends, at least at the IRS level whether YOU paid for the bennies or it was provided by your employer....
posted by raildr at 12:12 PM on January 26, 2014

State tax usually follows federal treatment.
posted by jpe at 2:51 PM on January 26, 2014

Was the disability insurance purchased with pre-tax or post-tax dollars?
posted by Jacqueline at 5:30 PM on January 26, 2014

Best answer: This page might be a bit more helplful. "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." So it seems that the benefits are never taxable on the California return, but may be on the federal return, but are not federally taxable in your case.
posted by Mr.Know-it-some at 6:06 PM on January 26, 2014