Are Social Security Disability Benefits Taxable in Michigan?
Learn how your total income impacts the federal taxation of your disability benefits, which remain exempt from Michigan's state income tax.
An individual’s Social Security Disability Insurance (SSDI) is not subject to state income tax in Michigan. However, these benefits may be taxed at the federal level. Whether a recipient owes federal income tax on their SSDI payments depends entirely on their total income from other sources.
Federal Taxation of SSDI Benefits
The federal government uses a specific formula to determine if Social Security disability benefits are taxable. This calculation hinges on a figure called “provisional income.” To determine your provisional income, you must add your modified adjusted gross income (MAGI), any nontaxable interest you received, and one-half of the total Social Security benefits you received for the year. The total annual amount of your benefits is reported to you by the Social Security Administration on Form SSA-1099.
Once you calculate your provisional income, you compare it to the thresholds set by the Internal Revenue Service (IRS) for your filing status. For an individual filer, if your provisional income is below $25,000, none of your SSDI benefits are subject to federal income tax. If your provisional income falls between $25,000 and $34,000, up to 50% of your benefits may be taxable. For provisional income exceeding $34,000, up to 85% of your SSDI benefits could be taxed.
For those married and filing a joint tax return, the income thresholds are different. If your combined provisional income is less than $32,000, your benefits are not taxed. Should your income be between $32,000 and $44,000, you may owe taxes on up to 50% of the benefits received. For joint filers with a provisional income over $44,000, the taxable portion of your benefits can be as high as 85%.
The taxable portion of your benefits is added to your other income and taxed at your regular income tax rate. These 50% or 85% figures are not the tax rates themselves; they represent the maximum amount of your benefits that can be considered taxable income.
Michigan State Taxation of SSDI Benefits
Michigan does not levy any state income tax on Social Security income. This exemption applies to all Social Security benefits, including SSDI, regardless of a taxpayer’s total income level. Therefore, even if a portion of your benefits is taxable on your federal return, it will not be taxed by the state of Michigan.
Because the starting point for the Michigan individual income tax return (Form MI-1040) is your federal adjusted gross income (AGI), any federally taxed Social Security benefits are initially included. To exempt this income, taxpayers must subtract the taxable amount on their state return. This is done using the Michigan Schedule 1, Additions and Subtractions form, which accompanies the main state tax form.
Reporting and Tax Planning
If a portion of your SSDI benefits is taxable, you must report that income to the IRS and pay the associated tax. The taxable amount, which you calculate, is reported on your federal Form 1040. To avoid a large tax bill when you file, you have two primary options for paying the tax throughout the year.
One method is to request voluntary tax withholding directly from your benefits. You can do this by completing Form W-4V, Voluntary Withholding Request, and submitting it to the Social Security Administration. On this form, you can elect to have a percentage of your monthly benefit withheld for federal taxes. The options are:
- 7%
- 10%
- 12%
- 22%
Alternatively, you can make quarterly estimated tax payments. Using Form 1040-ES, Estimated Tax for Individuals, you calculate the expected tax liability for the year and pay it in four installments. Generally, you must make estimated payments if you expect to owe at least $1,000 in tax for the year after accounting for any other withholding.