Michigan has a pension tax. It started in 2012. Here are the details to Michigan’s pension tax.
What to do First
One of the first things you should know is that if your pension income is subject to Michigan tax, you should withhold 4.35%. This includes distributions from pension and retirement benefits such as defined benefit pensions, IRA withdrawals, annuities, profit-sharing, stock bonus and other deferred compensation plans.
Whose Pensions are Taxed
Not all pensions are subject to Michigan’s tax. Your pension may or may not be taxed (and require withholdings) depending on when you were born. The new law separates taxpayers into three groups:
- Taxpayers born before 1946
- Taxpayers born from 1946 to 1952
- Taxpayers born after 1952
- For taxpayers born before 1946, there will be minor changes in the treatment of their pension. Public pensions and social security are still exempt. Private pensions have the maximums of $45,120 and $90,240 for single and married filing joint respectively. This amount is reduced by public pensions, military pensions, and railroad retirement. This group still can deduct for interest, dividends, and capital gains if they do not have a pension under current rules.
- Taxpayers born from 1946 to 1952 that are UNDER AGE 67 still have social security exempt from tax. There is NO subtraction for interest, dividends & capital gains no matter how old or young the taxpayer is, and the public and private pension subtraction is limited to only $20,000 and $40,000 for single and married filing jointly respectively. If the taxpayer born from 1946 to 1952 is age 67 and OLDER, social security is STILL exempt from tax, there is NO deduction for interest, dividend & capital gains for seniors, and an exemption is allowed against ALL INCOME (not just pensions) of $20,000 and $40,000 for single and married filing jointly.
- For taxpayers born after 1952 that are not yet age 67 are still allowed social security exempt from tax and there is NO subtraction for any pension, public or private. They can elect exemption against ALL INCOME of $20,000 and $40,000 for single and married filing jointly respectively. If they choose this exemption, there is NO exemption on social security and no personal exemptions. Taxpayers can elect to NOT pay tax on social security and use the personal exemption.
Note that if you are filing jointly, these changes are based on the age of the older spouse. Taxpayers can choose between some of the different options each tax season.
Takeaway
Michigan taxes pensions. If you live here you should be aware of Michigan’s pension tax. For more information, contact a Michigan NATP member at www.mi-natp.org.
4 replies to "Michigan’s Pension Tax"
I see nothing on this anywhere. One thing that bothers me about “new” taxes where none existed before—is that it provides a platform in which to RAISE it in following years….
jack guard
It is my understanding that military, social security, and railroad pensions are exempt. See page 2, paragraph 4 of http://www.michigan.gov/documents/taxes/2012_Pension_Withholding_Guide_365268_7.pdf.
unfair age tax on retires pensions(born 1953) no deductions? Very large tax incress on retires. We will remember in november 2012.
It does seem to be to be a tax on age. My guess is their logic was that if current retirees could afford to retire before 60, they can afford the tax. As for future retirees, this Nov. could be a chance to be heard.