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2015 Retirement & Pension Information

2015 Retirement & Pension Information

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2015 Pension & Retirement Benefits Chart

 

 

Note: For joint filers, the age of the oldest spouse determines the age category

What are pension and retirement benefits?

Under Michigan law, 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. Pension and retirement benefits are taxable based on date of birth (see age groups below). Regardless of date of birth, the following are not taxed:

  • US Military pensions
  • Michigan National Guard pensions
  • Social Security
  • Railroad benefits
  • Rollovers not included in the Federal Adjusted Gross Income (AGI)

Certain distributions reported on form 1099-R are not pension or retirement benefits. Under Michigan law, these distributions are taxable deferred compensation. Taxable deferred compensation distributions include:

  • All distributions from 457 plans
  • Distributions from 401(k) or 403(b) plans sourced to employee contributions and the earnings from those contributions if the contributions were not matched by the employer.

Distributions that are premature under the terms of the retirement plan are always taxable regardless of the date of birth of the taxpayer. (See retirement code chart for 1099-R below.)

NOTE: When considering your pension subtraction, 'surviving spouse' means the deceased spouse died prior to the current tax year (e.g., when filing a 2015 return the spouse died in 2008). Deceased spouse benefits do not include benefits from a spouse who died in 2015. If you or your spouse received pension benefits from a deceased spouse, see Form 4884, Michigan Pension Schedule instructions.

What are "Qualified Distributions"?

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 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 you are unsure whether your distribution qualifies, please contact your tax professional.

For qualifying distributions, there may be a limitation on the amount of the exemption that can be claimed.

Form 1099-R and Distribution Codes Chart

Form 1099-R reports the total pension and retirement benefits you received during the year. Please refer to box 7 on Form(s) 1099-R for the distribution code(s) that describes the condition under which the pension or retirement benefit was paid. This chart lists distribution codes and describes eligibility of benefits for subtraction based on each code. Some exceptions exist. If your distribution code is not included in the list below or if you have questions on eligibility of your benefits, please consult your tax professional.

 

Form 1099-R Distribution Codes

Form 1099-R Distribution Codes

Does the code indicate the distribution is eligible for a Michigan retirement and pension subtraction?
(Limited based on age and year of birth)
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;
Early retirement under the terms of the plan.
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 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.
Exception: You may not subtract distributions from a plan that:
  • allows the employee to set the amount of compensation to be deferred
  • does not prescribe the retirement age or years of service
8 - Excess contribution plus earnings/excess deferrals (and/or earnings) taxable in 2016. No.
9 - Cost of current life insurance protection. No.

For joint filers, the age of the oldest spouse determines the age category.

 

Recipients born before 1946:

For 2015 you may subtract all qualifying pension and retirement benefits received from public sources, and may subtract private pension and retirement benefits up to $49,811 if single or married filing separately or up to $99,623 if married filing jointly. Private subtraction limits must be reduced by public benefits subtracted. Withholding will only be necessary on taxable pension payments (private pension payments) that exceed the pension limits stated above for recipient born before 1946.

  • Complete Form 4884, Michigan Pension Schedule.
  • Military pensions, Michigan National Guard pensions and Railroad Retirement benefits are entered on Schedule 1, line 11. These continue to be exempt from tax. They must be reported on Schedule W Table 2, even if no Michigan tax was withheld.
  • Social Security benefits included in your adjusted gross income are entered on Schedule 1, line 14 and are exempt from tax.
  • Public pensions can include benefits received from the federal civil service, State of Michigan public retirement systems and political subdivisions of Michigan.
  • Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
  • Subtraction for dividends, interest, and capital gains is limited to $11,104 for single filers and $22,207 for joint filers, less any deductions for retirement benefits including US military, Michigan National Guard, and railroad retirement benefits.

Note:  If you were born prior to January 1, 1946 and you receive a public pension(s) from a state other than Michigan , you should 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 should treat the pension as a private pension.

Recipients born during the period January 1, 1946 through January 1, 1949:

If the older of you or your spouse (if married filing jointly) was born during the period January 1, 1946 through January 1, 1949, and reached the age of 67 on or before December 31, 2015, you are eligible for a deduction against all income and will no longer deduct pension and retirement benefits. The deduction is $20,000 for a return filed as single or married, filing separately, or $40,000 for a return filed as married, filing jointly. The standard deduction is reduced by any military pay (included on Schedule 1, line 14), military retirement (reported on Schedule 1, line 11) and any railroad retirement benefits (reported on Schedule 1, line 11)

  • Please complete Schedule 1, line 24 instead of Form 4884.
  • Filers born during the period January 1, 1946 through January 1, 1949 who have retirement benefits from employment with a governmental entity that was exempt from the Social Security Act will be eligible for increased deductions.

Recipients born after January 1, 1949 through December 31, 1952:

You may subtract the first $20,000 for single or married filing separately, or $40,000 for married filing jointly, of all private and public pension and annuity benefits. Benefits in excess of these limits are taxable to Michigan.

  • Complete Form 4884, Michigan Pension Schedule.
  • Military pensions, Michigan National Guard pensions and Railroad Retirement benefits are entered on Schedule 1, line 11. These continue to be exempt from tax. They must be reported on Schedule W Table 2, even if no Michigan tax was withheld.
  • Social Security benefits included in your adjusted gross income are entered on Schedule 1, line 14 and are exempt from tax.
  • Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.
  • Filers born Recipients born after January 1, 1949 through December 31, 1952 who have retirement benefits from employment with a governmental entity that was exempt from the Social Security Act will be eligible for increased deductions.

Recipients born after 1952:

All pensions (private and public) and retirement benefits are taxable to Michigan, unless one of following applies:

  • The older of you or your spouse (if married filing jointly) was born on or after January 1, 1953 but before January 2, 1954, have reached age 62 and receive Social Security exempt retirement benefits due to employment with a governmental agency. You may be eligible for a pension and retirement deduction. For more information see Michigan Pension Schedule.
  • You are receiving pension and retirement benefits from a deceased spouse who was born prior to January 1, 1953. When completing Form 4884, Michigan Pension Schedule, only include the deceased spouse's benefits.

Nontaxable benefits:

  • Military pensions, Michigan National Guard pensions and Railroad Retirement benefits are entered on Schedule 1, line 11. These continue to be exempt from tax. They must be reported on Schedule W Table 2, even if no Michigan tax was withheld.
  • Social Security benefits included in your adjusted gross income are entered on Schedule 1, line 14 and are exempt from tax.
  • Rollovers not included in the Federal Adjusted Gross Income (AGI) will not be taxed in Michigan.

Dividends/Interest/Capital Gain Deduction

Senior Citizens born before 1946 (or the unremarried surviving spouse for someone born before 1946 who was at least age 65 at the time of death) may subtract dividends, interest, and capital gains. The subtraction is limited to $11,104 for single filers and to $22,207 for joint filers for 2015. These limits must be reduced by any pension subtraction taken.

Dividends / Interest Examples

1. Example:

Senior Citizen filing a single return with $5,000 pension subtraction is only allowed an interest subtraction of $6,104 ($11,104 - $5,000 = $6,104).

Mary is 70 years old and has pension of $5,000 and interest income of $7,000.

Maximum interest subtraction
Less pension subtraction
Allowable interest subtraction
$11,104
- 5,000
$6,104
 
2. Example:

An individual 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 ($22,207).

Larry & Lucy Smiles are 70 years old and have pension of $90,240 and interest income of $15,201.

Maximum interest subtraction
Less pension subtraction
Allowable interest subtraction
$22,207
- 90,240
$0

Dividends/Interest/Capital Gain Deduction Estimator
Note: If you are the unremarried surviving spouse of someone born before 1946 who was at least age 65 at the time of death, enter your deceased spouse's year of birth.
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.

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.