SDI stands for State Disability Insurance. Some states, such as California, require employers to withhold a percentage of an employee’s pay as a mandatory contribution to the state disability fund. Because the deduction is a mandatory contribution, residents of states that impose SDI withholding may deduct the contributions on federal tax returns as an itemized deduction, along with other state taxes paid during the year. Federal itemized deductions reduce your taxable income, which is the amount on which most states base your state income tax.
Things You'll Need
- W-2 wage statement
- IRS Form 1040
- IRS Schedule A, Itemized Deductions
Determine the amount of SDI withheld from your pay during the year. The amount should be shown on your W-2 form in box 14. Alternatively, if you have your last pay stub, your year-to-date SDI deductions might be shown on the pay stub.
Obtain IRS Schedule A, Itemized Deductions. You must itemize deductions to receive credit for your SDI contributions. You may download Schedule A for free from the IRS.gov website.
Add your SDI and state income tax deductions. Your state income tax deductions are shown on your W-2 in box 17. Report the total on Schedule A, line 5.
Claim any other itemized deductions that you’re eligible to claim. Common itemized deductions include mortgage interest, property and real estate taxes paid, charitable contributions and medical expenses. Add the total of all your itemized deductions, and report the total on Schedule A, line 29. Transfer the total to IRS Form 1040, line 40. Schedule A may only be attached to Form 1040; you may not claim the SDI deduction on any other federal income tax form, such as 1040A or 1040 EZ.