Long-Term Disability Benefits for Michigan
If you are employed in the state of Michigan, you can obtain disability insurance to protect your incomes if you are unable to work because of long-term illness, injury or impairment. There are several types of long-term disability coverage available from the federal government, insurance companies as well as your employers. Long-term disability benefits are subject to taxation, however, depending on how much you make and how your insurance premiums are funded.
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Facts About Long-Term Disabilities
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Disabilities are considered long-term if they last for several years or for the rest of your life. According to the Social Security Administration, 30 percent of workers 20 years of age or older will become disabled at some point before retiring (see Resources). The Council of Disability Awareness reports that the average long-term disability lasts 2 1/2 years. One in seven workers will be disabled for at least five years, according to the website Insurance.com.
Benefits from Long-Term Individual and Group Disability Plans
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You have the options of purchasing your own long-term disability insurance plans from disability insurance companies or group coverage from your employers. Most individual and group long-term disability plans have benefit periods ranging from several years to lasting permanently. Long-term disability coverage plans have waiting periods that last several months; waiting periods start when a disability starts and end when benefits are schedule to be paid. Benefit amounts vary by the plans' insurance companies. Generally, long-term disability plans replace 40 to 65 percent of your pre-disability salaries according to the Life and Health Insurance Foundation for Education.
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Benefits from Social Security Disability
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Another source of long-term disability coverage is the Social Security Administration (SSA). The federal agency sponsors a disability program that pay income benefits to you if you have a qualifying long-term disability. You must also meet its work and earnings requirements as well. SSA Disability benefits are paid monthly and are based on your history of work earnings. Michigan beneficiaries are serviced by the SSA's Chicago region, which covers five other states in the Midwest -- Ohio, Indiana, Illinois, Wisconsin and Minnesota. As of 2011, over 8 million people in this region receive disability and other Social Security benefits each month. The average disability check from the SSA is $1,063.
Taxation of Benefits
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Long-term disability benefits could be subject to taxation. The Internal Revenue Service taxes long-term disability payments from group and individual disability plans if insurance premiums are paid with pre-tax dollars. If you pay your premiums with money that has already been taxed, your benefits are not considered taxable compensation. SSA Disability benefits are taxed if you have taxable compensation such as work wages, dividends and interest that boost your total income past the program's limits. If your combined income surpasses $25,000, the IRS taxes 50 percent of your benefits at normal income tax rates and 85 percent if your income is over $34,000. If you're married and your total household incomes exceed $32,000, 50 percent of your SSA Disability benefits are taxed; if your combined incomes top $44,000, 85 percent of your benefits are taxed.
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References
- Insure.com: The Basics of Long-Term Disability Insurance
- Insurance.com: Why You Need Disability Insurance
- Insurance Information Institute: What are the Types of Disability Insurance
- Life and Health Insurance Foundation for Education: Sources of Disability Income Protection
- SSA: How You Qualify for Social Security Disability Benefits
- SSA: Chicago Region
