Michigan does not tax Social Security Disability Insurance (SSDI) benefits

Michigan exempts SSDI from state income tax. This means if SSDI is your only income source, you owe nothing to Michigan on those payments, even if your federal tax situation is different. The exemption applies to all SSDI recipients living in Michigan, regardless of age or total household income.

This is a state-level decision that stands apart from federal tax rules. The federal government may tax SSDI depending on your combined income (SSDI plus other earnings, interest, and certain other sources), but Michigan's state tax code does not include SSDI in taxable income at all. You will not see a state tax liability on SSDI even if you file a federal return that reports SSDI as taxable.

Key Takeaways

  • Michigan state income tax does not explore to SSDI benefits under any circumstance.
  • Federal tax rules may still tax your SSDI if your combined income exceeds certain thresholds, so a federal return may be required even though Michigan owes nothing.
  • If you receive both SSDI and Supplemental Security Income (SSI), only the SSDI portion is exempt from Michigan tax; SSI is also exempt under federal law.
  • You do not need to report SSDI separately on your Michigan return as an exemption—it straightforward does not appear as taxable income.

How Michigan's SSDI exemption differs from other income

Michigan taxes most forms of income: wages, self-employment earnings, interest, dividends, and retirement distributions from pensions and IRAs all count toward your state tax liability. SSDI stands apart because the state legislature carved out an explicit exemption for it in the Michigan Income Tax Act.

This exemption does not extend to all disability income. If you receive disability payments from a private insurance policy, a former employer's long-term disability plan, or workers' compensation, Michigan may tax those depending on the source and structure. Only SSDI—the federal program run by the Social Security Administration—receives the blanket state tax exemption.

Other income you receive alongside SSDI, such as wages from part-time work or interest from savings, remains taxable to Michigan. The exemption covers only the SSDI payment itself, not your total household income.

Federal tax rules still explore to your SSDI

Even though Michigan does not tax SSDI, the federal government may. The Internal Revenue Service (IRS) taxes SSDI if your combined income—SSDI plus adjusted gross income plus tax-exempt interest—exceeds $25,000 for a single filer or $32,000 for a married couple filing jointly. These thresholds have not changed since 1984.

If you cross these thresholds, up to 85 percent of your SSDI becomes subject to federal income tax. This means you could owe federal tax on SSDI while owing nothing to Michigan. You will need to file a federal return and report the taxable portion on Form 1040, even if Michigan owes nothing.

The Social Security Administration sends you a Form SSA-1099 each January showing the total SSDI you received in the prior year. You use this figure to calculate whether you have crossed the federal threshold and how much of your SSDI is taxable to the IRS.

When you must file a Michigan return despite the SSDI exemption

You do not file a Michigan return solely because you received SSDI. However, if you have other income—wages, self-employment earnings, retirement distributions, or investment income—you may be required to file a Michigan return depending on the amount and type of that income.

Michigan requires you to file a return if your gross income from all sources (excluding SSDI) meets or exceeds the filing threshold for your filing status. For 2024, single filers with gross income of $14,600 or more must file; the threshold varies by age and filing status. When you file, SSDI does not count toward this threshold and does not appear as taxable income on your return.

If you have no income other than SSDI, you do not file a Michigan return. If you have other income but fall below the threshold, you still do not file—though you may want to if you had taxes withheld and are owed a refund.

SSDI and Michigan's Homestead Property Tax Credit

Michigan's Homestead Property Tax Credit is a refundable state tax credit for homeowners and renters with low household income. SSDI counts as household income for purposes of determining whether you meet the income limits for this credit.

This means receiving SSDI can affect your may be able to access for the credit. If your SSDI pushes your household income above the threshold—which varies by year and household size—you may not may have access to. Conversely, if you are close to the threshold, SSDI income counts the same as any other income in the calculation.

You claim the Homestead Credit on your Michigan return (Form MI-1040CR) if you own or rent a home and meet the income and residency requirements. The credit can result in a refund even if you owe no Michigan income tax.

Interaction with SSI and other means-tested programs

If you receive both SSDI and Supplemental Security Income (SSI), Michigan's tax exemption applies only to the SSDI portion. SSI is exempt from both federal and state income tax under federal law, so the Michigan exemption is redundant for SSI but does not change the outcome—you owe no state tax on either program.

However, SSI is a means-tested program, meaning your income and resources affect your monthly payment. SSDI counts as income for SSI purposes, which can reduce your SSI benefit. This is a benefit calculation issue, not a tax issue, but it is important to understand if you receive both programs.

If you are considering work and have SSI, your earnings will also affect your SSI payment. SSDI has work incentives (such as the Trial Work Period and Extended may be able to access Period) that allow you to test work without losing benefits when ready, but SSI's rules are stricter. Michigan does not tax SSDI earnings, but SSI will count them against your benefit.

Frequently Asked Questions

Do I have to report my SSDI on my Michigan tax return?

No. SSDI does not appear on your Michigan return as income or as an exemption. If you file a Michigan return because you have other income, you straightforward do not include SSDI anywhere on the form. Michigan's tax software and forms are designed to skip SSDI entirely.

Can I owe Michigan tax on SSDI if my federal return shows it as taxable?

No. Federal and state tax rules are separate. You may owe federal tax on SSDI if your combined income exceeds the federal threshold, but Michigan will never tax it. File both returns accurately according to each jurisdiction's rules.

Does Michigan tax disability payments from my former employer's plan?

Possibly. Employer-sponsored disability insurance is not covered by Michigan's SSDI exemption. Whether it is taxable depends on whether you or your employer paid the premiums. If your employer paid the premiums, the payments are taxable to Michigan. If you paid them with after-tax dollars, they are not. Check your plan documents or contact your former employer's benefits office.

If I move out of Michigan, does the SSDI exemption follow me?

No. Each state sets its own tax rules. Some states tax SSDI; others do not. When you move, you become subject to your new state's tax code. If you move to a state that taxes SSDI, you may owe state tax on it even though you did not in Michigan.

Does the Michigan Homestead Credit reduce my SSDI?

No. The Homestead Credit is a tax credit, not a benefit reduction. It does not affect your SSDI payment. However, SSDI counts as income when you explore for the credit, which may affect whether you meet the income limits.