MICHIGAN
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NICKNAME
The Great Lakes State
BOTTOM LINE: MIXED TAX PICTURE
New legislation makes Michigan less tax-friendly for retirees. Starting in 2012, pension income will be subject to state income tax. The state imposes a flat-rate income tax of 4.35% (scheduled to decline to 4.25% for 2013 and beyond). Property in Michigan is generally assessed at 50% of its cash value. Some seniors may be able to delay paying property taxes, and they may be exempt from a portion of the local school tax.
STATE SALES TAX
6%. Food and prescription drugs are exempt; home heating fuels are taxed at 4%.
INCOME-TAX RANGE
Flat rate of 4.35% of federal adjusted gross income; some cities impose additional income taxes.
In 2013 and beyond, the tax rate will be 4.25%.
SOCIAL SECURITY
Social Security benefits are not taxed in Michigan, although that may change for some taxpayers starting in 2020 (for details, see the paragraph on taxpayers born after 1952 in the next section below).
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Michigan has overhauled its income-tax rules for retirement benefits, effective in 2012 and beyond.
For taxpayers born before 1946: Military pensions and federal, state and local government pensions are exempt for 2012 and will remain exempt in future years for these taxpayers. In 2012, these taxpayers may also exempt private-pension income up to $47,309 (single filers) or $94,618 (joint). There’s also a deduction for interest, dividends and capital gains up to $10,058 (single) or $20,115 (joint).
For taxpayers born between 1946 and 1952: Military and Railroad Retirement benefits are exempt from state income tax in 2012. These taxpayers, however, may not deduct interest, dividends or capital gains. Other public and private pension income is exempt up to $20,000 (single) or $40,000 (joint). Once these taxpayers turn 67 years old, they may not claim additional pension deductions if also exempting military or Railroad Retirement income exemptions.
For taxpayers born after 1952: Military and Railroad Retirement benefits are exempt from state income tax in 2012. These taxpayers, however, may not deduct interest, dividends and capital gains. They also may not exempt other public and private pension income. Once these taxpayers turn 67 years old, they may either exempt Social Security, military and Railroad Retirement income or exempt $20,000 (single) or $40,000 (joint) from all income sources.
PROPERTY TAXES
Property in Michigan is generally assessed at 50% of its true cash value. A homestead property-tax credit is available to homeowners or renters whose household income is less than $82,650.
Tax breaks for seniors: Some seniors, disabled persons, veterans, surviving spouses of veterans and farmers may be able to delay paying property taxes, depending on the county of residence and income level.
Homeowners may be exempt from a portion of local school taxes under the Homeowner's Principal Residence Exemption Program, formerly known as the Michigan Homestead Exemption Program.
INHERITANCE AND ESTATE TAXES
Michigan has no inheritance tax and no estate tax.
Visit RetirementLiving.com for a complete rundown of taxes in Michigan.
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