Important Reminder: If your pension is affected by the 2012 law changes, it is your responsibility to contact your pension administrator to ensure taxes are being withheld from your pension payments.
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2012 Income Tax Changes Explanation Webcast |
Effective January 1, 2012, Michigan’s tax treatment of pension and retirement benefits will
change and these benefits will be subject to income tax for many recipients. Michigan law now requires the administrators of pension and retirement benefits to withhold income tax on
payments that will be subject to tax.
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Under Michigan law, qualifying pension and retirement benefits include most payments that are reported on a 1099-R for federal tax purposes. This includes defined benefit pensions, IRA distributions and most payments from defined contribution plans.
Payments received before the recipient could retire under the provisions of the plan or benefits from 401(k), 457, or 403(b) plans attributable to employee contributions alone are taxable under Michigan law.
Exceptions:
- Military pensions, Social Security & Railroad benefits continue to be exempt from tax.
- Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
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Only companies over whom Michigan has taxing jurisdiction are required to withhold Michigan tax from your pension and/or annuity payment(s).
If your pension administrator does not fall under Michigan jurisdiction you may request to have Michigan tax withheld, but the company is not required to do so. If taxes are not withheld from your payments, it is likely you will be required to make estimated payments in place of the withholding. Contact your pension and/or annuity administrator to verify if tax will be withheld from your payments.
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2012 Estimates
In the absence of an MI W-4P, pension administrators shall do one of the following:
- They will not withhold on benefits paid to recipients born before 1946 unless the benefits exceed private pension limits.
- If the recipient was born 1946 or after, withhold on all taxable pension distributions at 4.35%.
If you have more than one administrator you will need to submit a MI W-4P for each pension or annuity.
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Your tax situation may change from year to year; you may want to evaluate your withholding each year. You can change the amount to be withheld by submitting an updated Form MI W-4P to your pension or annuity administrator at any time.
If you (and your spouse) receive multiple pension payments, your withholding on those payments may not cover your entire tax liability. Married couples where each spouse receives payments on their own pension may choose to have withholding calculated as if they were single on the MI W-4P and select one personal exemption in order to have sufficient withholding to cover their tax liability. Taxpayers with multiple pensions may need to consult the MI-1040ES or a tax advisor to ensure the proper amount is withheld or paid in estimated income tax payments.
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View Webcast
Beginning in 2012, pension and retirement benefits will be taxed differently depending on the age of the recipient. For couples, the age of the oldest spouse determines the age category.
Recipients born before 1946:
For 2012 you may subtract all qualifying pension and retirement benefits received from public sources, and may subtract private pension and retirement benefits up to $47,309 if single or married filing separate or up to $94,618 if married filing a joint return. Withholding will only be necessary on taxable pension payments (private pension payments) that exceed the pension limits stated above for recipient born before 1946.
Exceptions:
- Military pensions, Social Security & Railroad benefits continue to be exempt from tax.
- Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
View Sample Form MI W-4P
Pension Estimator
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Recipients born between 1946 & 1952:
For couples, the age of the oldest spouse determines the age category.
- The first $20,000 for single /married filing separate or $40,000 for joint filers of all private and public pension and annuity benefits may be subtracted from Michigan taxable income. Benefits in excess of these limits are taxable to Michigan.
Exceptions:
- Military pensions, Social Security & Railroad benefits continue to be exempt from tax.
- Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
Example 1:
Jim born 1947 - Single
Social Security $8,000
Pension (Public or Private) $32,000
Interest Income $150
The first $20,000 of Jim's pension benefits are not taxable. Social Security is exempt from Michigan tax. Due to Jim’s age, he does not qualify for a subtraction of his interest income. Therefore, $12,000 of the pension and $150 interest income is taxable. Jim could file the MI W-4P as single marking box 3 with 1 personal exemption but may want to check with his pension administrator to make sure enough withholding is being taken out of his payments.
If the individual has more than 1 pension, it would be recommended he contact a tax advisor or the pension administrator(s) to ensure enough withholding is being taken from his payments.
Example 2:
Jim born 1947 & Jan born 1953 – Married
His pension (Public or Private) $54,893
Social Security $6,000
Gambling Winnings $1,500
Because Jim was born in 1947, the couple would use his age to determine the age category. The first $40,000 of the pension income can be subtracted. Social Security is exempt from Michigan tax. Therefore, $14,893 of the pension and the $1,500 gambling winnings are taxable. Jim could file the MI W-4P as married marking box 3 with 2 personal exemptions to cover the tax liability of the pension but may want to check with his pension administrator to make sure enough withholding is being taken out of his payments.
Example 3:
Jim born 1947 & Jan born 1953 – Married
His pension (Public or Private) $54,893
Her pension (Public or Private) $16,000
Social Security $6,000
Gambling Winnings $1,500
Because Jim was born in 1947, the couple would use his age to determine the age category. The first $40,000 of the pension income can be subtracted. Social Security is exempt from Michigan tax. Therefore, $30,893 of the pension and the $1,500 gambling winnings are taxable. Because of the multiple pensions, both Jim and Jan could file the MI W-4P choosing the marital status Married (withhold same as “single”) marking box 3 with 1 personal exemption each to cover the tax liability of the pension but may want to check with their pension administrators to make sure enough withholding is being taken out of their payments.
If the couple has 2 or more pensions, it would be recommended they contact a tax advisor or their pension administrator(s) to ensure enough withholding is being taken from their payments.
Example 4:
Jim born 1947 & Jan born 1953 - Married
His pension (Public or Private) $52,385
Her wages $32,597
Interest Income $383
Because Jim was born in 1947, the couple would use his age to determine the age category. The first $40,000 of the pension income can be subtracted. Due to Jim’s age, they do not qualify for a subtraction of the interest income. Therefore, $12,385 of the pension, $32,597 in wages and $383 interest income are taxable. Jan has already submitted an MI W-4 (wages) with her employer claiming personal exemptions. In this situation, Jim should file the MI W-4P choosing the marital status Married (withhold same as “single”) marking box 3 with -0- personal exemptions to cover the tax liability of the pension but may want to check with the pension administrator to make sure enough withholding is being taken out of his payments.
If the couple has more than 1 pension, it would be recommended they contact a tax advisor or their pension administrator(s) to ensure enough withholding is being taken from their payments.
View Sample Form MI W-4P
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Recipients born after 1952:
For couples, the age of the oldest spouse determines the age category.
All pensions (private and public) and retirement benefits are taxable to Michigan.
Exceptions:
- Military pensions, Social Security & Railroad benefits continue to be exempt from tax.
- Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
Example 7:
Jim born 1953 - Single
Pension (Public or Private) $32,000
Wages $15,000
Because of Jim’s age, all of his pension benefits are taxable. Jim has already submitted an MI W-4 (wages) with his employer claiming personal exemption(s). Jim should file the MI W-4P as single marking box 4 with -0- personal exemptions but may want to check with his pension administrator to make sure enough withholding is being taken out of his payments.
If the individual has more than 1 pension, it would be recommended he contact a tax advisor or the pension administrator(s) to ensure enough withholding is being taken from his payments.
View Sample Form MI W-4P
Disclaimer:
Michigan Department of Treasury does not give advice on any personal income tax requirements or related issues. These responses are for informational purposes only and are not to be interpreted as official statements of the Michigan Department of Treasury. These responses are not to be construed as promulgated rules, bulletins or rulings of the Department and are subject to revision pursuant to the effect of legislation, court decisions, regulations and official statements of the Department. Nothing on our web site or any telephone conversations may be considered "advice" or a "recommendation" to any person, business or entity. Use of any information from this web site is for general information and instructional purposes only. It is not intended as personal tax advice either expressed or implied. Taxpayers are advised to seek professional tax and/or investment advisors for questions pertaining to their specific circumstances.
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