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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

  • For tax years beginning on and after Jan. 1, 2023, retirees receiving a pension benefit based on service as a state police trooper or sergeant are exempt from the state income tax on their pension income beginning with the 2023 tax year, regardless of age.

  • 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: There is no change. You can still deduct the full amount of the allowable deduction for the 2024 tax year.
    • 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 50% of the 2024 maximum* for those born in 1945 or before.
    • 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 50% of the 2024 maximum* for those born in 1945 or before.
    • 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 PA 4 of 2023 to deduct up to 50% of the 2024 maximum* for those born in 1945 or before.
    • Those born in 1959-1962: You are not eligible for a deduction under the Income Tax Act of 1967 but do qualify under PA 4 of 2023 to deduct up to 50% of the 2024 maximum* for those born in 1945 or before.
    • 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: There is no change. You can still deduct the full amount of the allowable deduction for the 2025 tax year.
    • 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 75% of the 2025 maximum* for those born in 1945 and before.
    • Those born between 1953-1958 who are or will be 67 years of age or older by Dec. 31, 2025: You can choose between the maximum deduction of
      • $20,000 for single returns and $40,000 for joint returns or
      • Up to 75% of the 2025 maximum* for those born in 1945 and before.
    • Those born in 1959-1966: You are not eligible for a deduction under the Income Tax Act of 1967 but do qualify under PA 4 of 2023 to deduct up to 75% of the 2025 maximum* for those born in 1945 or before.
    • 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 their retirement or pension benefits not to exceed 100% of the amount of the allowable deduction.

    * 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.

     
  • 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?
  • PA 4 of 2023 does not apply to the 2022 tax year. Although it changes obligations for the 2023 tax year, it will not officially take effect until 90 days after sine die adjournment of the current legislative session, so likely that means it will take effect sometime in March 2024. Retirees who want to use the limits of PA 4 of 2023 will likely need to file their 2023 tax return after the law’s effective date. If you file your 2023 tax return before the law’s effective date, you can file an amended return.
  • You will not see a change until the law takes effect or we let you know differently.
  • 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. For direct information, you can review the full law here. You may want to go here if you want to know the exact language used in PA 4 of 2023.
  • If you are a retired state trooper or sergeant, see the answer to question 1. All other retirees of the State Police Retirement System, see the answer to question 2.
  • If you are a retired state trooper or sergeant, see the answer to question 1. All other retirees of the State Police Retirement System, see the answer to question 2.
  • Additional questions about tax obligations or filing requirements are best answered by a professional tax preparer or advisor.
  • 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.