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Pension & Retirement Benefits – 2011

Pension & Retirement Benefits – 2013
Pension & Retirement Benefits Information – 2012

A subtraction is allowed on the Michigan return for qualifying distributions from retirement plans. Retirement plans include private and public employer plans, and individual plans such as IRA's. To be considered a qualified distribution for the subtraction, several requirements must be met. For employer plans, an employee generally must have retired under the provisions of the plan, the pension benefits must be paid from a retirement trust fund, and the payment must be made to either the employee or a surviving spouse. (Payments made to a surviving spouse are only deductible if the employee qualified for the subtraction at the time of death.)

  • If the conditions were met, there may be a limitation on the amount of the exemption that can be claimed.
  • If you received a pension or retirement benefit payment, you also received a Form 1099R. There is a box on Form 1099R titled "Distribution code(s)". Look in the "Distribution code(s)" box for the number that describes the condition under which the pension or retirement benefit was paid.

This chart describes the distribution codes and their eligibility for Michigan tax exemption.

Form 1099R Distribution Codes

Is the condition eligible for Michigan tax exemption?
(Dollar Limits may still apply)

1 - Early distribution, no known exception.

No.

2 - Early distribution, exception applies.

No, unless part of a series of mainly equal periodic payments made for the life of the employee or the joint lives of the employee and their beneficiary.

Distributions from a 457 plan (a kind of deferred compensation plan) are not exempt.

3 - Disability.

Yes.

4 - Death.

Yes, for surviving spouse only and only if the decedent would have also qualified for a normal distribution under Distribution Code 7 at the time of death.

No, for all other beneficiaries.

No, if paid as a death benefit payment made by an employer but not made as part of a pension, profit sharing, or retirement plan.

5 - Prohibited transaction

No.

6 - Section 1035 exchange. the exchange of life insurance, endowment insurance and annuity contracts

No.

7 - Normal distribution.
  • normal distribution from a plan,
  • distribution from a traditional IRA, if the participant is at least 59½,
  • Roth conversion if the participant is at least age 59½,
  • distribution from a life insurance, annuity, or endowment contract must be 65 and part of a series of mainly equal periodic payments made for the life of the employee or the joint lives of the employee and their beneficiary
Yes.
8 - Excess contribution plus earnings/excess deferrals (and/or earnings) taxable in 2011. No.
9 - Cost of current life insurance protection No.

Michigan and federal public pensions. Federal and Michigan public pensions are totally exempt. Public pensions include benefits received from the federal civil service, State of Michigan public retirement systems and political subdivisions of Michigan, military retirement and Tier 2 railroad retirement. If the conditions of the plan under step one are met, then these payments are totally exempt from Michigan income tax.

Public pensions from other states. Michigan residents can treat the public pensions received from the following states as totally exempt: Alaska, Florida, Hawaii, Illinois, Massachusetts, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming because they do not tax Michigan Public Pensions.

Michigan residents who receive public pensions from states not listed above are subject to the private pension exemption limits.

Private Pensions. Private pension subtractions are limited to $45,842 on a single return and $91,684 on joint returns for tax year 2011.

Combined Private and Public Pension Distributions. If you received both public and private pension distributions then the maximum allowable subtraction exemption for the private pension must be reduced by the amount the combined pensions exceed any public pension amount.

Pension Examples

Example #1

Mary has a public pension of $25,000 and a private pension of $25,000.

Maximum private pension exemption subtraction
Less public pension 

$45,842
 -25,000
Allowable private pension exemption
Plus public pension
$20,842
+25,000
Total pension subtraction allowed $45,842

Example #2

Bill has a public pension of $47,000 and a private pension of $15,000

Maximum private pension exemption subtraction
Less public pension

$45,842
-47,000
Allowable private pension exemption
Plus public pension
$  -0-
+47,000
Total pension subtraction allowed $47,000

Senior Citizens (aged 65 or older, or the surviving un-remarried spouse of a senior) may subtract interest, dividends and capital gains. The subtraction is limited to $10,218 for single filers and to $20,437 for joint filers for 2011. These limits must be reduced by any pension subtraction taken.

Interest / Dividends Examples

1. Example:

Senior Citizen filing a single return with $5,000 pension subtraction is only allowed an interest subtraction of $5,218 ($10,218 - 5,000 = $5,218).

Mary is 65 years old and has pension of $5,000 and interest income of $6,000.

Maximum interest subtraction $10,218
Less pension subtraction - 5,000
Allowable interest subtraction $5,218

2. Example:

Senior Citizens filing a joint return with $90,240 pension subtraction is not allowed an interest subtraction because the pension amount is more than the allowable subtraction of interest ($20,437).

Lioness & Lucy Smiles age 65 years old has pension of $90,240 and interest income of $15,201.

Maximum interest subtraction $20,437
Less pension subtraction - 90,240
Allowable interest subtraction $0
Pension Interest/Dividends/Capital Gain Estimator
 
 
   Public Pension received from a state other than Michigan
   
   Pension Limitations for Prior Years
   Interest/Dividends/Capital Gain Limitations for Prior Years
 

Your Results:

Please remember to a copy of this screen once your estimation is complete. Keep this copy with your tax records/documentation for the appropriate year. Do not use the "Printer Friendly" version as it will delete all figures from your estimation results.

DISCLAIMER:
This estimator provides an unofficial estimate and has no legal bearing on any future tax liability. Interactive estimators are made available to you as self-help tools for your independent use.

NOTE:The information you provide is anonymous and will only be used for purposes of this estimation. It will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it. It will be discarded when you exit this program.

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