Is CA SDI Tax Deductible on Federal or State Tax Returns?

California State Disability Insurance (CA SDI) tax is a payroll deduction that supports employees during disability or family leave. Understanding its implications on federal and state tax returns is essential for optimizing filings.

Tax Classification of CA SDI

California State Disability Insurance is a state-mandated program funded through employee payroll deductions. It is a state-specific levy, not a federal tax, which influences how contributions are treated on tax returns. These deductions fund short-term disability insurance and paid family leave benefits.

The IRS classifies CA SDI contributions as personal expenses, making them ineligible for federal tax deductions. Similarly, California does not allow these contributions to be deducted on state tax returns, as they are considered part of the overall state tax burden.

Deductibility Criteria

The deductibility of CA SDI contributions is governed by specific tax codes. The Internal Revenue Code permits deductions for certain state and local taxes, such as income, real estate, and personal property taxes. Payroll taxes like CA SDI, however, do not qualify.

On the state level, the California Franchise Tax Board also excludes CA SDI contributions from being deductible. Since these contributions are mandatory, unlike voluntary contributions to retirement or health savings plans, they are classified as non-deductible.

Federal Return Treatment

For federal tax purposes, CA SDI contributions are categorized as non-deductible personal expenses. This aligns with IRS policy, which limits deductions to specific state and local taxes, excluding payroll levies like CA SDI.

Taxpayers who itemize deductions must consider IRS thresholds. For 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. While itemizing may benefit some taxpayers, CA SDI contributions cannot be included as deductible expenses.