EDD sent me 1099G for SDI benefits - Do I really owe taxes when transitioning from work to disability?
I'm so confused about my tax situation with my SDI benefits. I just got a 1099G form from EDD showing all my disability payments from last year as taxable income. I thought disability wasn't supposed to be taxed?? I was working full-time until I had to take medical leave in February 2025 due to complications from my surgery. I worked the first week of February and then started my disability claim right after. My HR department told me that SDI benefits aren't taxable if you transition directly from work to disability, which I did! Now I'm looking at potentially owing thousands in taxes I wasn't expecting. Has anyone dealt with this before? Is there some exception I'm missing? I earned about $72,000 from my job before going on disability, if that matters for tax purposes.
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Ella rollingthunder87
Unfortunately, California SDI benefits ARE federally taxable income. That's why you received the 1099G. Your HR department gave you incorrect information. The transition from work to disability doesn't affect the taxability. However, SDI benefits are not subject to California state income tax, so you won't pay state taxes on those benefits. The confusion might be with Unemployment Insurance (UI), which has different rules than SDI regarding taxation. You should definitely account for this income on your federal tax return.
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Tony Brooks
•Oh no!! That's going to completely mess up my tax planning. I've already spent some of what I set aside for taxes thinking I wouldn't owe on the SDI portion. My HR person seemed so confident about this. Is there ANY situation where disability payments aren't taxed? Maybe they were thinking of worker's comp?
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Yara Campbell
ur HR was prolly thinking of workers comp which is diff from SDI. workers comp isnt taxed but sdi totally is for federal. its confusing cuz CA doesnt tax it but fed govt does lol. happened to me last yr and i was shocked at the bill
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Isaac Wright
•This is such a stupid system! Why would they tax disability income when we're already dealing with medical issues and reduced income?! I got hit with this last year too and had to set up a payment plan with the IRS because I couldn't afford to pay it all at once. The EDD website barely explains any of this. They should be required to make it CRYSTAL CLEAR that we'll owe federal taxes on these benefits!
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Maya Diaz
Your HR department confused Worker's Compensation benefits (which are NOT taxable) with SDI benefits (which ARE federally taxable). California doesn't tax SDI at the state level, but the federal government definitely does. This is a very common misunderstanding. You can elect to have federal taxes withheld from future disability payments by completing Form DE 4P with EDD. That won't help for past payments, but can prevent this problem in the future if you're still receiving benefits. If this creates a financial hardship for you this tax season, look into IRS payment plans. They're surprisingly reasonable and the process is automated for smaller amounts owed.
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Tony Brooks
•Thank you for explaining! I wish I'd known about the DE 4P form before. My disability claim ended in November, so it's too late for withholding now. I'll definitely look into the IRS payment plans. Do you know if I can set that up when I file my taxes or do I need to wait for a bill from them?
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Tami Morgan
I had this EXACT problem last year!! My benefits weren't taxed and I got slammed with a huge bill I wasn't expecting. I tried calling EDD like 50 times to sort it out but could never get through. The worst part is they don't make this clear AT ALL when you apply for benefits. Nobody tells you to set aside money for taxes!
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Rami Samuels
•Try Claimyr if you still need to talk to someone at EDD about taxes or other issues. I was in the same boat trying to reach someone at SDI about my tax forms having incorrect information. Used claimyr.com and they got me connected to an actual EDD agent in about 15 minutes. They have a video showing how it works: https://youtu.be/1X-mEsLtbmQ?si=1hcSq3KFtCr4oAmd. Totally worth it to avoid the endless busy signals and hangups.
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Haley Bennett
Quick tip - if you're still receiving SDI benefits, you can fill out a form to have taxes withheld from your future payments! I learned this the hard way too.
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Tony Brooks
•Thanks, but my benefits ended in November unfortunately. I guess I'll just have to deal with the tax bill now. I'm pretty mad at my HR department for giving me wrong information though!
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Maya Diaz
@OP - To answer your follow-up question, you can set up a payment plan when you file your taxes through most tax software, or you can wait until you receive a bill from the IRS. If you set it up when filing, you can avoid the notice fee they charge if you wait for a bill. The IRS Online Payment Agreement tool makes it pretty straightforward. One other thing to check - make sure the 1099G amount is correct. Occasionally EDD issues 1099Gs with incorrect amounts. Compare the total to your payment history in your SDI Online account under "Payment Activity.
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Tony Brooks
•Thank you so much! This is incredibly helpful. I'll definitely set up the payment plan when I file my taxes to avoid that extra fee. I just checked my payment history in SDI Online and the amount on the 1099G does match what I received, so at least that part is correct. I appreciate your help!
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Yara Campbell
btw i think the confusion is cuz workers comp, ssi and private disability insurance all have diff tax rules than SDI. google "publication 15a" from irs it explains all this tax stuff. most ppl dont realize state disability is taxed federally
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Ella rollingthunder87
•Correct! Here's a quick breakdown for anyone else confused: - CA SDI: Federally taxable, not CA state taxable - Workers Comp: Not taxable (federal or state) - SSI/SSDI: May be partially taxable depending on total income - Private disability insurance: Taxable if employer paid premiums, non-taxable if you paid premiums with after-tax dollars Publication 15-A is a good resource, and IRS Publication 525 specifically addresses disability income taxation.
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Romeo Barrett
I'm really sorry you're going through this surprise tax situation! As a newcomer here, I wanted to share that I just went through something similar. I also received SDI benefits last year and was shocked when I got the 1099G. What helped me was using a tax calculator online to estimate what I'd owe before filing, so I could prepare mentally and financially. Also, if you're using tax software like TurboTax or H&R Block, they usually walk you through setting up payment plans right during the filing process, which saves you from dealing with IRS notices later. The community here seems really knowledgeable about these SDI tax issues - I wish I'd found this group earlier in my disability journey!
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Charlotte Jones
•Welcome to the community! I'm also pretty new here and dealing with similar SDI tax confusion. That's a great tip about using tax calculators beforehand - I wish I had thought of that! I'm still trying to figure out if there are any deductions or credits that might help offset some of the tax burden from disability benefits. Did you find any tax software better than others for handling SDI income? I've heard some are more user-friendly for disability-related tax situations.
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