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FAQs for Public Act 4 of 2023 - Retirement State Tax Changes

FAQs for Public Act 4 of 2023 - Retirement State Tax Changes

  • 2023 tax year

    • Those born in 1945 or before: There is no change. You can still deduct the full amount of the allowable deduction. For the 2023 tax year, it’s $61,518 for single returns and $123,036 for joint returns.
    • Those born between 1946-1952: You can choose between the maximum deduction of:
      • $20,000 for single returns and $40,000 for joint returns (the previous provisions of the Income Tax Act of 1967), or
      • Up to 25% of the maximum amount of the allowable deduction for those born in 1945 or before, which for the 2023 tax year would equal a deduction of $15,379.50 for a single return and $30,759 for a joint return.
    • Those born between 1953-1958 who are 67 years of age or older: You can choose between the maximum deduction of:
      • $20,000 for single returns and $40,000 for joint returns (the previous provisions of the Income Tax Act of 1967), or
      • Up to 25% of the maximum amount of the allowable deduction for those born in 1945 or before, which for the 2023 tax year equals $15,379.50 for a single return and $30,759 for a joint return.
    • Those born between 1953-1958 who are 66 years of age or younger: You are not eligible for a deduction under the Income Tax Act of 1967 but do qualify under Public Act (PA) 4 of 2023 to deduct up to 25% of the maximum amount of the allowable deduction for those born in 1945 or before, which for the 2023 tax year equals $15,379.50 for a single return and $30,759 for a joint return.
    • Those born in 1959 and after: You are not eligible for a deduction in the 2023 tax year.

    2024 tax year

    • Those born in 1945 or before: You are exempt from state income tax withholding. On January 1, 2024, ORS automatically updated your state income tax withholding to “No Withholding.” Therefore, no state income tax withholding will be deducted from your pension payments, unless you elect to have it withheld. Otherwise, there is no change you need to make. 
    • Those born between 1946-1962: You qualify under PA 4 of 2023 to deduct up to 50% of the 2024 maximum, which for the 2024 tax year equals $32,020 for a single return and $64,040 for a joint return. Effective March 1, 2024, retirees born between 1946 and 1962 will automatically have their state tax calculated based on their age, filing status, and the 2024 maximum deduction amounts. For most retirees, this will result in a decrease in the amount of state tax being deducted from your pension, starting with your March 2024 pension payment.
    • Those born in 1963 or after: You are not eligible for a deduction in the 2024 tax year.

    2025 tax year

    • Those born in 1945 or before: You are exempt from state income tax withholding. 
    • Those born between 1946-1966: You qualify under PA 4 of 2023 to deduct up to 75% of the 2025 maximum.* 
    • Those born in 1967 or after: You are not eligible for a deduction in the 2025 tax year.

    2026 tax year and subsequent tax years

    • All retirees, regardless of their birth year, can deduct 100% of the 2026 maximum.* 

    * Maximum amounts are adjusted annually by the percentage increase in the United States Consumer Price Index. Maximum amounts are provided before the start of each tax year.

     

  • Please see the comparison charts for your retirement system on how this change may impact you.

  • You can always elect to have state income tax withheld from your pension. PA 4 of 2023 is being phased in over four years, from 2023 to 2026. Depending on your tax situation, you may still have a state income tax obligation on your pension.
  • No, the Michigan tax withholding will be reflected on your 2023 1099-R when those are available in January 2024.
  • We cannot answer that question; we can only speak to the changes PA 4 of 2023 enacts, which are covered in the FAQ question What are the new tax rules regarding pensions? 
  • No. Although PA 4 did not officially take effect until Feb. 13, 2024, Michigan’s 2023 tax return, forms, and instructions (e-file and paper format) incorporate all retirement and pension benefit subtraction options – including those created in the new law. Retirees who filed their taxes prior to the law’s effective date need not file an amended return because the Michigan Department of Treasury will work impacted returns as they are received and prepare them for release after the law’s effective date. For more details about retirement tax changes, see the Michigan Department of Treasury website. 
  • On Jan. 1, 2024, ORS automatically updated the tax withholding for retirees born in 1945 and withholding for these retirees has been updated to “No Withholding.”
     
    Effective March 1, 2024, retirees born between 1946 and 1962 will automatically have their state tax calculated based on their age, filing status, and the 2024 maximum deduction amounts. For most retirees, this will result in a decrease in the amount of state tax being deducted from your pension, starting with your March 2024 pension payment.
     
    As PA 4 of 2023 continues to be phased in through 2026, ORS will update the tax withholdings accordingly and will notify you of these changes.
  • No. Your pension is taxed, based on your gross taxable base benefit, so your federal tax withholding will not change. PA 4 of 2023 will only impact your liability for Michigan tax withholding.
  • Your tax liability will be determined by you or your spouse’s age, your filing status, and the retirement system(s) from which you receive a pension.
  • Your portion of your former spouse’s pension will be handled the same as a regular retiree. Your pension is not impacted by choices your former spouse makes about their tax withholding.
  • Yes.
  • Additional questions about tax obligations are best answered by a professional tax preparer or advisor. While we cannot provide tax advice, ORS is happy to help if you have a specific change you want to make to your tax withholding on a benefit received from our office.
  • There is no change to your pension benefit. The change is that your Michigan tax liability will change as the law is phased in.
  • ORS can only speak to the impacts of PA 4 of 2023 on your pension payments. For more information, consult with a tax advisor. Link to the legislature website.

  • See question 1, or see the comparison charts for your retirement system:  

     

  • See question 1, or see the comparison charts for your retirement system: 

     
  • Additional questions about tax obligations or filing requirements are best answered by a professional tax preparer or advisor.
  • The maximum deduction is $64,040 for single or married filing separately, and $128,080 for married filing jointly. Depending on birth year, some retirees qualify for the full deduction while others qualify for 50% of the maximum amount. These amounts are subject to change every year. Each tax year, the maximum amounts allowed are adjusted by the percentage increase in the United States Consumer Price Index for the immediately preceding calendar year. 
     
  • Distributions from the State of Michigan 401(k) Plan that are attributable to employer contributions and earnings on those contributions, including Personal Healthcare Fund contributions, would qualify for tax relief under PA 4 of 2023, to the extent dictated for the various age groups and tax years. Distributions from the State of Michigan 457 Plan are not exempt from state taxation.
  • Additional questions about tax obligations or filing requirements are best answered by a professional tax preparer or advisor. If you would like to adjust your state tax withholding on future distributions, you will need to submit a new MI W-4P form to Voya.