Social Security Disability Insurance, or SSDI, payments are not taxed in the state of Michigan. While Michigan is one of many states that taxes income, it fully exempts SSDI benefits from the recipient’s taxable income. However, just because you are not taxed on your SSDI payments at the state level does not mean the federal government won't levy a tax.
While you do not have to pay taxes on disability benefits in the state of Michigan, you may have to pay taxes on the income at the federal level.
Who Is Eligible for SSDI?
SSDI is available to workers and certain members of their families and is provided through the Social Security Administration, or SSA. You need to meet eligibility requirements, such as having paid into Social Security through taxes, and you also must have a long enough work history to earn credits to qualify for these benefits. To be considered disabled for SSA purposes, you have to be unable to do the work you used to do, you cannot adapt to another job due to your medical condition and your condition has either lasted for a least a year or is expected to result in your death. The SSA also does not pay benefits for partial or short-term disabilities; you must have a total disability.
Federal Taxes and SSDI
Although your state may not tax SSDI benefits, the IRS surely does. But, it is worth noting, that even though the IRS taxes these benefits, according to legal self-help site Nolo, only roughly one-third of taxpayers actually end up having to pay taxes on the SSDI payments they receive. And when they do, it is generally because of other household income or a spouse’s income, if filing jointly. The majority of SSDI recipients do not have enough income to clear filing thresholds.
If you are a single filer, you can receive between $25,000 and $34,000 per year in combined income before up to 50 percent of your benefits are subject to taxation. If you earn more than $34,000 when filing singly, then up to 85 percent of your SSDI benefits can be taxed. When you are a joint filer, on the other hand, you need to have between $32,000 and $44,000 in combined income for your benefits to be subject up to 50 percent taxation. If you have more than $44,000 in combined income, up to 85 percent can be taxed.
The Social Security Administration also pays out benefits to disabled, aged or blind persons who may not have earned enough work credits to qualify for SSDI. Known as SSI, or Social Security Income, these benefits are based on financial need and provide cash assistance for basic necessities. It is possible to qualify for both SSDI and SSI payments at the same time, known as concurrent benefits. According to the Social Security Administration, the medical requirements for disability eligibility are the same under both programs, for most people. The SSI income qualifications, however, can be a bit tricky, and some states have higher limits. Check with the Social Security Administration's website for more information regarding SSI eligibility and income requirements.
- SSA: Taxes and Your Social Security Benefits
- Disability Secrets by NOLO: Does My State Tax Social Security Disability Benefits?
- SSA: Benefits for People with Disabilities
- NOLO: Are Social Security Disability Benefits Taxed?
- SSA: Supplemental Security Income Home Page -- 2018 Edition
- Disability Secrets by NOLO: Can You Qualify for Both SSDI and SSI Disability Benefits?
- SSA: Disability -- How You Qualify
- Social Security Administration. "Fact Sheet Social Security and Supplemental Security Income (SSI): What’s the difference?" Accessed Oct. 17, 2020.
- Social Security Administration. "Fact Sheet Social Security." Accessed Oct. 17, 2020.
- Social Security Administration. "Benefits Planner: Disability / How You Qualify." Accessed Oct. 17, 2020.
- IRS. "Frequently Asked Questions: Regular and Disability Benefits." Accessed Oct. 17, 2020.
- Tax Foundation. "2019 Tax Brackets." Accessed Oct. 17, 2020.
- Tax Foundation. "2020 Tax Brackets." Accessed Oct. 17, 2020.
- AARP. "Which States Tax Social Security Benefits?" Accessed Oct. 17, 2020.
Tara Thomas is a Los Angeles-based writer and avid world traveler. Her articles appear in various online publications, including Sapling, PocketSense, Zacks, Livestrong, Modern Mom and SF Gate. Thomas has a Bachelor of Science in marine biology from California State University, Long Beach and spent 10 years as a mortgage consultant.