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This tax discussion is included for general information only. Consult a tax advisor for advice on how the purchaser/beneficiary might be specifically affected as a result of program participation.
State Income Tax Deduction
A purchaser may deduct the amount paid for a contract from taxable income when determining Michigan income tax for the year in which the contract is purchased. If a contract is purchased by a lump sum the entire contract price may be deducted. For monthly payment plans or pay-as-you-go, the total contributions made during a given tax year can be deducted.
Please Note: Deductions are taken on Michigan tax form Schedule 1, line 18.
Federal and State Income Tax Matters
MET is a qualified tuition program under Section 529 of the Internal Revenue Code. MET benefits used to pay college tuition and mandatory fees may be exempt from federal and Michigan income taxes. If, however, a MET contract is terminated and the refund is not used to pay qualified higher education expenses, contract "earnings" (the value of the refund over the amount paid for the corresponding portion of the contract) could be subject to federal and Michigan income taxes and a 10% federal excise tax. The person receiving the refund will be responsible for those taxes.