If they are not taxable for Federal purposes, then they are not taxable for California. However, I am only 95% sure. Call the CA franchise tax board before making a decision at
1-800-852-5711 early in the morning. One problem I have with the facts is you don't say if they are short-term benefit or a long-term benefit.
Let me know how it comes out.
Disability payments that are received as a result of premiums paid on the policy with after tax dollars are not taxable. An accountant can verify this.
Here is something found at the following IRS link: http://www.irs.gov/faqs/faq/0,,id=199752,00.html
"Question: I am receiving long-term disability. Is it considered taxable?
Answer: You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:
1. If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employer’s payments is reported as income.
2. If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return."
As you can see you would seem to fit under #2 and a result the disability payments would not be taxable income to you.
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These benefits should not be taxable in CA. Have a CA tax professional review your particular situation before you move to make sure.
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