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Pension Reform 2011 Frequently Asked Questions

The changes to the tax structure will affect returns due in 2013. For an overview of the changes, visit the Department of Treasury website.

  1. Supreme Court Case  - Published 12/6/2011
  2. Age Requirements for MI Income Tax on Pension  - Updated 2/2/2012
  3. Residency Questions  - Updated 1/27/2012
  4. When Will Tax Go Into Effect  - Published 12/6/2011
  5. Amount of Tax Withheld  - Updated 2/2/2012

 

Supreme Court Case

  1. What's happening with the state pension tax law in the Supreme Court?

Age Requirements for MI Income Tax on Pension

  1. I'm filing jointly with my spouse. Whose age should we go by to know how the tax will affect us?
  2. I'm receiving a survivor's pension. Whose date of birth will state use to determine if I pay taxes; my deceased spouse or mine?

Residency Questions

  1. I don't live in Michigan. Will my pension be subject to MI income tax?
  2. I live out of state half of the year. Will I be taxed?
  3. If I change my address with ORS to an out of state address, will you stop deducting for State of Michigan taxes?
  4. I change my address between Michigan and Florida every year. Will you continue to deduct Michigan taxes?
  5. I live in Michigan now but will be moving out of state. Will you stop taking out taxes for Michigan?
  6. I live in another state several months of the year. For tax purposes, am I considered a Michigan resident?

When Will Tax Go Into Effect

  1. When will ORS start taxing my pension?
  2. How will this affect my tax returns for 2012?
  3. Will I be taxed monthly starting in January 2012 or after my pension payments go over the $40,000/20,000 threshold?

Amount of Tax Withheld

  1. How much will ORS withhold from my pension for the Michigan income tax?
  2. What should I choose for my exemptions?
  3. I want to know the dollar amount that will be deducted for Michigan Income Tax for my January 2012 pension payment.
  4. What is the percentage rate for the new state tax?
  5. Will there be a form available to change my Michigan withholding?

 

Supreme Court Case.

1. What's happening with the state pension tax law in the Supreme Court?
 

The legislature passed the bill, Public Act 38, and the governor has signed it, so the pension tax is considered Michigan law. The Michigan Supreme Court has ruled that the pension tax is constitutional, but making recipients ineligible for the subtraction based on household resources creates a graduated income tax that is unconstitutional. These portions will need to be revised by the legislature. We'll post any new information in the What's New section of the website.

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Age Requirements for MI Income Tax on Pension.

1. I'm filing jointly with my spouse. Whose age should we go by to know how the tax will affect us?
 

The age of the oldest spouse determines the category that will apply to the pension and retirement benefits of both spouses, regardless of the age of the younger spouse. However, in January ORS will start withholding taxes according to the birthdate of the individual pension recipient. If your spouse falls into a different age category and you don't want taxes withheld, log into miAccount and update the withholding for MI income tax.

If you're filing as a single taxpayer, use this table to see how the MI income tax will affect your pension.

Michigan residents -- Single taxpayer
Born before 1946 Born on or after January 1, 1946, and before January 1, 1953 Born on or after January 1, 1953
Your pension is not subject to MI income tax.

Some of your pension income may be subject to Michigan income tax. You can subtract up to $20,000 in pension income from your taxable income on your MI income tax forms. Once you turn age 67, the subtraction allowance applies to all forms of income.

Visit www.michigan.gov/withholding for more information.

After age 67, you will be eligible to subtract up to $20,000 from your taxable income on your MI income tax forms.

Visit www.michigan.gov/withholding for more information.

 

If you're filing jointly with your spouse, the age of the oldest spouse determines the category that will apply to the pension and retirement benefits of both spouses, regardless of the age of the younger spouse. However, in January ORS will start withholding taxes according to the birthdate of the individual pension recipient. If your spouse falls into a different age category and you don't want taxes withheld, log in to miAccount and updated the withholding for MI income tax.

Michigan residents -- Couples filing jointly
Oldest spouse born before 1946 Oldest spouse born on or after January 1, 1946, and before January 1, 1953 Oldest spouse born on or after January 1, 1953
Your pension is not subject to MI income tax.

Some of your pension income may be subject to Michigan income tax. You can subtract up to $40,000 in pension income from your taxable income on your MI income tax forms. Once the oldest spouse turns age 67, the subtraction allowance applies to all forms of income.

Visit www.michigan.gov/withholding for more information.

Your pension will be subject to Michigan income tax until the oldest spouse reaches age 67. After age 67, you will be eligible to subtract up to $40,000 from your taxable income on your MI income tax forms.

Visit www.michigan.gov/withholding for more information.

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2. I'm receiving a survivor's pension. Whose date of birth will state use to determine if I pay taxes; my deceased spouse or mine?
 

We'll calculate your withholding based on your age since you are now receiving the pension payment.

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Residency Questions.

1. I don't live in Michigan. Will my pension be subject to MI income tax?
 

Your taxation status depends on your state of residence; if you're not a Michigan resident, you will not be subject to MI income tax.

WHAT ORS WILL DO: If you currently have a Michigan address on file with us, we'll withhold Michigan income taxes according to Public Act 38. To protect you from being under-withheld, If you currently have a non-Michigan address on file with us, but had a Michigan address on file between September 1, 2011 and December 16, 2011, ORS will withhold MI income tax. If your address with us has been out-of-state since before September 1 of this year, we won't withhold Michigan income tax. You can log in to miAccount any time after December 23 to make changes to your withholding.

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2. I live out of state half of the year. Will I be taxed?
 

Your taxation status depends on your state of residence; if you're not a Michigan resident, you will not be subject to MI income tax.

WHAT ORS WILL DO: If you currently have a Michigan address on file with us, we'll withhold Michigan income taxes according to Public Act 38. To protect you from being under-withheld, If you currently have a non-Michigan address on file with us, but had a Michigan address on file between September 1, 2011 and December 16, 2011, ORS will withhold MI income tax. If your address with us has been out-of-state since before September 1 of this year, we won't withhold Michigan income tax. You can log in to miAccount any time after December 23 to make changes to your withholding.

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3. If I change my address with ORS to an out of state address, will you stop deducting for State of Michigan taxes?
 

See Residency Questions > Question 2 for answer.

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4. I change my address between Michigan and Florida every year. Will you continue to deduct Michigan taxes?
 

See Residency Questions > Question 2 for answer.

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5. I live in Michigan now but will be moving out of state. Will you stop taking out taxes for Michigan?
 

See Residency Questions > Question 2 for answer.

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6. I live in another state several months of the year. For tax purposes, am I considered a Michigan resident?
 

Questions of residency should be directed to the Michigan Department of Treasury. If your address on September 1, 2011 was in Michigan, ORS will withhold taxes based on your current federal exemptions. If you determine after talking with the Michigan Department of Treasury that you are not considered a resident and don't want taxes withheld, log into miAccount after December 23 and update your withholding for Michigan income tax.

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When Will Tax Go Into Effect.

1. When will ORS start taxing my pension?
 

Michigan tax will be withheld from your January 2012 pension based on the number of exemptions you requested for your federal income tax. If you were born on or before December 31, 1945, ORS will not withhold Michigan income tax unless directed by you. You can log in to miAccount any time after December 23 to make changes to your withholding.

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2. How will this affect my tax returns for 2012?
 

The new law won't affect the 2011 tax returns you file in 2012. The new law will affect the tax returns you file in 2013 (for the 2012 year).

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3. Will I be taxed monthly starting in January 2012 or after my pension payments go over the $40,000/20,000 threshold?
 

ORS will not know when you have reached the income threshold, so if you are subject to taxes, ORS will begin withholding starting January 1, 2012. After December 23 you can log into miAccount and make adjustments to your withholding if needed. You may want to contact your tax advisor for the total number of exemptions you should claim, considering all of your sources of income.

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Amount of Tax Withheld.

1. How much will ORS withhold from my pension for the Michigan income tax?
 

Michigan tax will be withheld from your January 2012 pension based on the number of exemptions you requested for your federal income tax. If you'd like to use the same number of exemptions for your Michigan income tax, you don't need to do anything. If you'd like to change your state or federal exemptions, log into miAccount on or after December 23, 2011 and make any changes you need. If you make changes on or after January 10, 2012, we'll use your federal exemptions to calculate your state income tax in January, and your changes will take effect in February.

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2. What should I choose for my exemptions?
 

ORS can't give you advice about your specific tax situation. You may want to consult a tax professional about adjusting your withholding amount.

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3. I want to know the dollar amount that will be deducted for Michigan Income Tax for my January 2012 pension payment.
 

After December 23, a calculator will be available in miAccount. Please log in to review your Michigan income withholding and adjust as needed.

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4. What is the percentage rate for the new state tax?
 

Pensions will the taxed at the same rate as other income, 4.35 percent.

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5. Will there be a form available to change my Michigan withholding?
 

An updated version of our withholding form is available.

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