LANSING, Mich. – Michigan Gov. Gretchen Whitmer signed into law the Lowering Mi Cost plan, which includes a rollback on the retirement tax that was implemented more than a decade ago.
The new law will amend the Income Tax Act. Under the law, Michigan taxpayers will have the opportunity to choose between the current limits on the deductibility of pension or retirement income. This new law will deliver a $1 billion tax break to seniors and working families. The Income Tax Act will phase out the retirement tax over four years, saving 500,000 Michigan households an average of $1,000, according to estimates.
House Bill 4001 will also expand the Working Families Tax Credit by refunding up to $3,150 to about 700,000 Michigan families. Officials wrote in the bill that an advance refund payment will have to be issued automatically to each eligible taxpayer for practical reasons. The rebate could be disbursed into an eligible Michigan taxpayer’s account that was authorized for direct deposit for their 2022 Individual Income Tax refund. There will be no advance refund payments after Dec. 31, 2023.
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An eligible taxpayer is an individual who was a resident of Michigan as of Dec. 31, 2022, and who filed an Individual Income Tax return for the 2022 tax year.
What you need to know if you were born before 1946:
- For those born before 1946, Michigan taxpayers may deduct AGI, military, National Guard or railroad pension and retirement income. The taxpayer may also deduct eligible retirement and pension benefits from a Federal or State public retirement system, Social Security benefits and the max. of $56,961 for a single return and $113,922 for a joint return for the 2022 tax year.
What you need to know if you were born in 1946-1952:
- Taxpayers that are not yet 67 years old are limited to $20,000 for a single return and $40,000 for a joint return. Once the Michigan taxpayer reaches the age of 67, they will be eligible for an unrestricted deduction against all types of income. Those that don’t have the restrictions are eligible for an unrestricted deduction of $35,000 for a single return, $55,000 for a joint return, or $70,000 for a joint return.
- Officials note that a person who takes the deduction for a military, National Guard, or railroad pension or retirement benefits is not eligible for the unrestricted deduction.
- It is also noted that the taxpayers born during this time period and who retired as of Jan. 1, 2013, if they receive retirement or pension benefits from a government agency, the sum of their deductions are limited to $35,000 for a single return and $55,000 -- if they are not covered by the Social Security Act.
What you need to know if you were born after 1952:
- Those who are between the ages of 62 through 66 and receive pension or retirement benefits from a government agency but are not covered by the Social Security Act are limited to a deduction of $15,000 for a single return and, generally, $15,000 for a joint return.
- Once these taxpayers reach the age of 67, they are then eligible for an unrestricted $20,000 for a single return and $40,000 for a joint return. If the taxpayer chooses to take this deduction, they may not take a deduction for Social Security benefits or claim a personal exemption. A Michigan taxpayer who takes the deduction for military, National Guard, or railroad retirement or pension benefits is not eligible for the unrestricted $20,000/$40,000 deduction.
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The new law will reduce the General Fund revenue by $560 million in the fiscal year of 2022- 2023. The changes are also stated to increase revenue to several funds such as the SOAR Fund, Michigan Housing and Community Development and RPF. The changes will generate revenues for Michigan Housing and Community Development Fund by $50 million, RPF by $50 million and SOAR by $460 million.
Below is a table summarizing the impacts the bill will have:
The bill was first introduced on Jan. 12 by State Representative Angela Witwer of Delta Township.
“I’ve held office in the House for three terms, and each term, I introduced a bill to repeal the retirement tax: I’m so happy for Michiganders that we finally got it across the finish line. In addition to repealing the retirement tax, which has been eating away at the finances of older Michiganders for over a decade, we are also expanding the working families tax credit and ensuring that our state is ready to lead in 21st-century green manufacturing. I’m grateful that members on both sides of the aisle could come together, set aside our differences, and do the right thing for our state,” said Rep. Angela Witwer (D-Delta Township).
You can read the House Bill 4001 analysis below:
You can read the House Bill No. 4001 public act below:
Below is the Lowering Mi Cost Plan fact sheet:
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