State-by-State Guide to Taxes on Retirees - Michigan
Tool | November 2019

State-by-State Guide to Taxes on Retirees

Michigan

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The Bottom Line
Flag 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%. Cities can levy income taxes as well, on both residents and non-residents (who are taxed 1/2 the rate of residents). In Detroit, the resident rate is 2.4%; the state average is 1.70%, according to the Tax Foundation.

Effective tax rate: 4.25% for single filers, 4.25% for joint filers

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

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 2018 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 $51,570 of income from private retirement plans is exempt (up to $103,140 for joint filers). Taxpayers can also deduct up to $11,495 of interest, dividends, and capital gains (up to $22,991 for joint filers).

Taxpayers Born Between 1946 and 1952: Up to $20,000 of income from a retirement plan 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.

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). 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).

Property Taxes

In Michigan, residents pay an average of $1,729 in taxes per $100,000 of assessed home value.

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

None.

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