Trading Disability For Wages


Today TaxMama hears from Dave in the Tax Quips Forum with an odd question. “I received SDI for two months in 2010 and gave it to my employer so that I could retain full pay.  It does not show on my W-2 and I was taxed for full pay.  How do I handle the SDI payments that went to my employer on my taxes?” 


Dear Dave,

How very odd! I have never heard of that kind of arrangement before.

Let’s see. Random thoughts, here.

1) SDI income is not taxable to you in the first place. Typically, you cannot deduct expenses in relation to non-taxable income.

2) This is an arrangement with your employer. Please check with your payroll department to find out what is normally done with this kind of arrangement. Surely, this is not the first time they have done this.

3) It seems that you have traded a small amount of money for a much larger amount of money. That sounds like a good thing, right?

4) Did part of your compensation get designated as sick pay? If I am not mistaken, sick pay isn’t taxed for Social Security and Medicare. Check on that with your payroll department, too.

Perhaps someone else here can come up with a better idea. I’ll turn this into a TaxQuip today and see.

 And remember, you can find answers to all kinds of questions about returning compensation to an employer and other tax issues, free. Where? Where else? At

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join link – it’s free!] 

Please post all Comments and Replies in the new TaxQuips Forum .

Comments are closed.