If you received short-term disability from the state during the tax year, the amount you received may be taxable, depending on where you live. The majority of states don’t impose an SDI tax, but some do tax it at the federal level. However, in those states, you may be able to claim the taxes you paid on your federal income taxes.
What Is SDI Tax?
You’ve likely heard plenty about Social Security disability benefits, which are issued at the federal level. But some states have their own disability funds, which they issue to residents in need. In some states, such as California, New York and Washington, you’ll be required to pay taxes on at least part of the money you receive. The good news is, you can take an SDI employee deduction in the form of claiming the payment on your federal taxes. You’ll just need to know how to calculate the information and where to put it.
You’ll find information on your SDI contributions on Form W-2 box 14. SDI contributions are considered state and local taxes, so they’re listed on the newly-released Schedule A on line 5. They’re considered a form of state and local income tax, along with the taxes you pay on your other earnings. In most states, you’ll find there’s a statutory maximum contribution, so if you had more than that amount withheld, you won’t be able to claim the excess. Monitor local tax changes from year to year, since the statutory maximum contribution can change without warning.
Exceptions to Claiming SDI
There are instances where you might not be able to take the SDI employee deduction. One of the most notable is if you choose to claim sales tax versus other local taxes when you itemize. The IRS makes you choose between claiming state and local income tax or state and local sales taxes. You can’t claim both. If you opt to claim your sales tax paid throughout the year, you may find that you’re unable to claim your SDI taxes.
Another consideration before you use W-2 box 14 for SDI is whether you plan to itemize at all. The Tax Cuts and Jobs Act bumped the standard deduction to $12,000 per person or $18,000 for those claiming head of household status. This means even if you plan to itemize your deductions, you may not be able to gather enough to exceed the amount you’d get by merely using the standard deduction. Still, it’s worth calculating your deductions to see exactly how much you have.
2018 Taxes and SALT Limits
If you have a high number of deductions you plan to take in 2018, it’s important to know the changes to state and local tax deductions under the Tax Cuts and Jobs Act. Before you fill in W-2 box 14 with SDI tax, read up on the SALT limits starting with the 2018 tax season. You can only claim up to $10,000 in state and local taxes. This might not matter if your SDI tax is all you’re claiming, but it also applies to property taxes and state income tax. If you’re a high earner, or you live in an area of the country where the cost of living is higher than average, you may find that you can’t claim the full amount you paid in 2018.
Filing Your 2017 Taxes
If you’re still filing your 2017 taxes, you can take the SDI employee deduction, along with other state and local taxes, without limit. This is notable in places like New York, where the average SALT deduction was more than $21,000 in a recent tax year. Simply pull your records for that tax year and input the information on Schedule A where prompted.
- Nolo: Are State Short-Term Disability and Social Security Disability Benefits Taxed?
- The Motley Fool: How to Deduct SDI on Schedule A
- IRS: Deduct your state unemployment and disability contributions
- IRS: Itemized Deductions
- IRS: Sales Tax Deduction Calculator
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- The Motley Fool: Are My Property Taxes Still Deductible in 2018?
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Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.