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Pension Taxation Bills
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The bills that would increase taxes on many pensions, both public sector and private, were signed into law by Governor Rick Snyder on May 25.  The main bill in the package, HB 4361, was enacted as PA 38 of 2011.  The subsection (8) of the new law that particularly affects pension recipients can be found on page 6-7 of the attachment.
Under H.B. 4361:
  • The Michigan Business Tax is replaced by a 6 percent Corporate Income Tax. The corporate tax applies only to companies that file as "C" corporations - typically, those that issue stock - and means that nearly 100,000 businesses no longer have to file returns.
  • Numerous credits, deductions and exemptions are eliminated.
  • The income tax rate is frozen at 4.35 percent until Jan. 1, 2013, when it is lowered to 4.25 percent. The rate compares favorably with most Great Lakes states. Only Indiana's flat rate of 3.4 percent is lower.
  • A three-tiered system determines whether retirement income is taxed.  People born before 1946 will continue to receive the current retirement income exemptions, as well as the personal exemption, Social Security exemption and the exemption for dividends, interest and capital gains.
  • Taxpayers born between 1946 and 1952 will have a $20,000 single and $40,000 joint retirement income exemption in addition to the Social Security exemption and personal exemption until age 67. Upon turning 67, they receive a $20,000 single and $40,000 joint senior exemption against all income in addition to Social Security and personal exemptions.
  • People born after 1952 receive the personal exemption and Social Security exemption until they turn 67. When 67 and older they receive a $20,000 single and $40,000 joint senior exemption against all types of income. This exemption can be taken instead of the Social Security and personal exemptions if it is more beneficial to the filer.
  • For people born in 1946 and after, the retirement income and senior exemptions are phased out if total household resources exceed $75,000 for single filers and $150,000 for joint filers. People born before 1946 are not affected.
  • Military pensions continue to be exempt.
  • The Earned Income Tax Credit is retained at a rate of 6 percent of the federal credit.

View the entire bill here: 2011-HNB-4361

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