Speaking of taxes… While we don’t want to pay taxes as a rule, sometimes it might be in our best interests to pay some. It may actually save you some money.
Consider the SDI – California State Disability Insurance. While the state allows substituting it with a VDI program provided the benefits remain the same, the savings you see from taking the cheaper VDI are not the whole story.
CA SDI is tax deductible for Federal tax purposes (while VDI – is not!). So, if you’re in a 25% bracket, the VDI has to not just be cheaper than SDI, it has to be 25% cheaper to just break even!
So next time you have a chance to choose between participating in SDI or VDI at your work – check the prices. For SDI also consider the tax benefit, which you’re not getting for the VDI. It might be so that you’re actually paying more for the “cheaper” VDI coverage.
Those of my readers who are not in California – several other states have similar programs: Alaska, New Jersey, New York, Pennsylvania, Rhode Island and Washington State. Full list and details are available in the IRS Publication 17.
Note, that you can only take advantage of the tax deduction on SDI if you’re itemizing your deductions. For those who take the standard deduction – the VDI savings would be straight forward, because no tax benefits are lost.
As always, don’t forget to discuss it with your tax adviser, as I’m not a tax professional and may be wrong.
Your Little Avdisor.