Tool | November 2017

State-by-State Guide to Taxes on Retirees

Michigan

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The Bottom Line
Map of Michigan

Not Tax Friendly

In recent years, the Great Lakes State has become less tax-friendly for retirees. As of 2012, for retirees born after 1945, more pension income is subject to state income tax. The state imposes a flat-rate income tax of 4.25%. Some seniors may be able to delay paying property taxes or receive a tax credit.

State Sales Tax

6% state levy. No local taxes.

Income Tax Range

Michigan has a flat tax rate of 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 information on taxpayers born after 1952 in the sections below).

Exemptions for Other Retirement Income

Michigan has overhauled its income tax rules for retirement benefits.

For taxpayers born before 1946: Military pensions and federal, state and local government pensions are exempt. Private pension income is also exempt, up to $49,811 (single filers) or $99,623 (joint filers) for 2015. There's also a deduction for interest, dividends and capital gains up to $11,104 (single) or $22,207 (joint).

For taxpayers born between 1946 and 1952: Military and Railroad Retirement benefits are exempt from state income tax. These taxpayers, however, may not deduct interest, dividends or capital gains. Other public and private pension income is exempt up to $20,000 (single filers) or $40,000 (joint filers). Once these taxpayers turn 67 years old, the deduction for pension/retirement benefits is replaced by a standard deduction against all income of $20,000 (single) or $40,000 (joint). The standard deduction is reduced by any deductions taken for military retirement benefits or Railroad Retirement income. Beginning in 2013, retirees with pension benefits from employment with a government entity that was exempt from the Social Security Act have higher deduction limits.

For taxpayers born after 1952: Military and Railroad Retirement benefits are exempt from state income tax. 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 deduct Social Security, military and Railroad Retirement income or deduct $20,000 (single filers) or $40,000 (joint filers) from all income sources.

IRAs

Qualifies for Michigan retirement-income exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Distributions from 401(k) and 403(b) plans sourced to employee contributions and the earnings from those contributions if the contributions weren't matched by the employer, as well as all distributions from 457 plans, are considered taxable deferred compensation.

Private Pensions

For taxpayers born before 1946: Private pension income is exempt up to $49,811 (single filers) or $99,623 (joint filers) for 2015.

For taxpayers born between 1946 and 1952: Private pension income is exempt up to $20,000 (single filers) or $40,000 (joint filers). Once these taxpayers turn 67 years old, the deduction for pension/retirement benefits is replaced by a standard deduction against all income of $20,000 (single) or $40,000 (joint). The standard deduction is reduced by any deductions taken for military retirement benefits or Railroad Retirement income.

For taxpayers born after 1952: These taxpayers may not not exempt private pension income. Once these taxpayers turn 67 years old, they may either deduct Social Security, military and Railroad Retirement income or deduct $20,000 (single filers) or $40,000 (joint filers) from all income sources.

Public Pensions

For taxpayers born before 1946: Military pensions and federal, state and local government pensions are exempt. Out-of-state public pensions from states that exempt Michigan public pensions are exempt from tax. Other out-of-state public pensions should be treated as a private pension.

For taxpayers born between 1946 and 1952: Military and Railroad Retirement benefits are exempt from state income tax. Public pension income is exempt up to $20,000 (single filers) or $40,000 (joint filers). Once these taxpayers turn 67 years old, the deduction for pension/retirement benefits is replaced by a standard deduction against all income of $20,000 (single) or $40,000 (joint). The standard deduction is reduced by any deductions taken for military retirement benefits or Railroad Retirement income. Beginning in 2013, retirees with pension benefits from employment with a government entity that was exempt from the Social Security Act have higher deduction limits.

For taxpayers born after 1952: Military and Railroad Retirement benefits are exempt from state income tax. These taxpayers, however, may not deduct interest, dividends and capital gains. They also may not exempt other public pension income. Once these taxpayers turn 67 years old, they may either deduct Social Security, military and Railroad Retirement income or deduct $20,000 (single filers) or $40,000 (joint filers) from all income sources.

Property Taxes

The median property tax on Michigan's median home value of $127,800 is $2,185, according to the Tax Foundation.

Tax breaks for seniors: 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.

Vehicle Taxes

Sales tax is due.

Inheritance and Estate Taxes

There is no inheritance tax or estate tax.