Contributed by: Kali Hassinger, CFP®, CSRIC™
In early March of 2022, Michigan’s Gov. Gretchen Whitmer signed the Lowering MI Costs plan into law. This legislative change includes an update that will phase out state tax on pensions (both public and private) and other retirement income for many Michigan residents! Like past rules, the amount that can be deducted depends on when you were born and is adjusted incrementally over the next four years.
For those born in 1945 and before, there is no change. The maximum allowed deduction can still be claimed each year. In 2023, that amount is $56,961 for single filers and $113,822 for joint filers. This maximum deduction amount is adjusted for inflation each year.
2023
For those born between 1946 and 1952: Taxpayers will choose between claiming the current exemption of $20,000 for single filers or $40,000 for joint filers, or, under the new law, can deduct up to 25% of the max 2023 deduction amount (Single Filers: $56,961 x .25 = $14,240.25; Joint Filers: $113,922 x .25 = $28,480)
For those born between 1953 and 1958: Single filers can deduct up to 25% of the 2023 amount of $56,961 ($14,240.25), Joint Filers can deduct up to 25% of the 2023 amount of $113,922 (28,480). Under previous law, there was no deduction allowed.
For those born in 1959 and after: No deduction allowed
2024
For those born between 1946 and 1952: Taxpayers will choose between claiming the current exemption of $20,000 for single filers or $40,000 for joint filers, or under the new law, Single and Joint filers can deduct up to 50% of the 2024 maximum deduction amount
For those born between 1953 and 1962: Can deduct up to 50% of the maximum deduction allowed in 2024
For those born in 1963 and after: No Deduction allowed
2025
For those born between 1946 and 1952: Taxpayers will get to choose between claiming the current exemption of $20,000 for single filers or $40,000 for joint filers, or under the new law, Single and Joint filers can deduct up to 75% of the 2025 maximum deduction amount
For those born between 1953 and 1966: Can deduct up to 75% of the maximum deduction allowed in 2025
For those born in 1967 and after: No Deduction allowed
2026
For all taxpayers: Full Deduction allowed
This change is estimated to reduce state tax paid by an average of $1,000 for each household affected.
Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.
The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statement, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
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Raymond James does not provide tax advice. Please discuss these matters with the appropriate professional. This document is a summary only and not meant to represent all provisions within the Lowering MI Cost plan.