State-by-State Guide to Taxes on Retirees
Tool | December 2020

Michigan State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Michigan

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The Bottom Line
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Not Tax-Friendly

The Great Lakes State tends to collect more state and local taxes from retirees than many other states, thanks in large part to above-average property taxes. Even though Michigan offers some property tax breaks for lower-income seniors (and others), the state's median property tax rate is still the 14th-highest in the nation.

It's a bit of a mixed bag when it comes to income taxes for retirees. If you were born before 1946, the tax breaks for retirement income are pretty good. However, if you were born later, the state isn't quite as generous.

On the positive side, sales taxes in Michigan are below average. The state rate is 6%, which isn't too bad. Plus, there are no additional local sales taxes to worry about.

Income Tax Range

Michigan has a flat tax rate of 4.25%. Cities can levy income taxes as well, on both residents and non-residents (who are taxed 1/2 the rate of residents).

Taxation of Social Security Benefits

Social Security benefits are not taxed by the state. Although taxpayers born after 1952 can claim a $20,000 deduction ($40,000 for joint filers) in lieu of the Social Security exemption and other tax breaks.

Tax Breaks for Other Retirement Income

Military pensions and Railroad Retirement benefits are exempt for all taxpayers.

Michigan’s treatment of other retirement income, which depends on when the recipient was born, is as follows (all dollar figures are for the 2020 tax year).

Taxpayers Born Before 1946: Income from federal and Michigan government retirement plans is exempt. Government pensions from other states are also exempt if the other state does not tax Michigan government pensions. In addition, up to $53,759 of income from private retirement plans is exempt (up to $107,517 for joint filers). Taxpayers can also deduct up to $11,983 of interest, dividends, and capital gains (up to $23,966 for joint filers).

Taxpayers Born From 1946 to 1952: Up to $20,000 of retirement income is exempt (up to $40,000 for joint filers). Once these taxpayers turn 67 years old, the retirement income exemption is replaced with a $20,000 standard deduction against all income ($40,000 for joint filers). The standard deduction is reduced by any deductions taken for military or railroad retirement benefits. Retirees with pension benefits from employment with a government entity that was exempt from the Social Security Act have higher exemption and deduction limits ($35,000 for single filers, $55,000 for joint filers, or $70,000 for joint filers if both spouses worked for an "uncovered" agency).

Taxpayers Born After 1952: Retirement income is generally not exempt (although pension income from employment with a government entity that was exempt from the Social Security Act may be deductible up to the limits described above). However, once these taxpayers turn 67 years old, they can either (1) claim personal exemptions and deduct Social Security, military, and railroad retirement income, or (2) deduct $20,000 from all income sources ($40,000 for joint filers).

Sales Tax

6% state levy. No local taxes.

Groceries: Exempt, but prepared food is taxable
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Exempt

Real Property Taxes

In Michigan, the median property tax rate is $1,448 per $100,000 of assessed home value.

Michigan offers tax credits to both homeowners and renters who meet restrictions on income (and property value, if applicable). These credits are more generous to those 65 or over. Property owners 62 or over with total gross household income of $40,000 or less may be able to defer payment on property taxes as well.

Annual Car Taxes and Fees

No annual vehicle tax or fee is imposed.

Estate and Inheritance Taxes

No estate or inheritance tax.

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