Additions and Subtractions

The following are the most common additions to adjusted gross income (AGI). Additions are taxable items and must be entered on Michigan Schedule 1, totaled, and carried to Form MI-1040:

• Interest and dividends from obligations or securities of states other than Michigan and their political subdivisions.
• Taxes on or measured by income (e.g., deduction for self-employment tax).
• Losses from out-of-state businesses, partnerships, and S corporations.
• Losses from out-of-state rental of real property.
• Out-of-state farm losses.
• Michigan portion of gain from Form MI-1040D or MI-4797.
• Net loss from federal column of Form MI-1040D or MI-4797.
• Losses from the sale or exchange of U.S. obligations to the extent used in arriving at AGI.
• Refund received from the termination of a Michigan Education Trust (MET) contract.
• An unqualified withdrawal from education savings accounts under the Michigan Education Savings Program (MESP) Act if the amount was not included in AGI.
• Federal net operating loss deduction used to reduce AGI.

The following are the most common allowable subtractions from AGI. Subtractions are nontaxable items and are limited to the extent the income is included in AGI. Subtractions must be entered on Michigan Schedule 1, totaled, and carried to Form MI-1040.

• Income from U.S. government obligations reduced by any expenses in carrying the obligation used in arriving at AGI.
• Compensation and retirement benefits received for services in the U.S. Armed Forces to the extent included in AGI; do not deduct compensation received from the U.S. Public Health Service.
• Pension/retirement benefits received from the service in Michigan National Guard to the extent included in AGI.
• Pension/retirement benefits received under the Railroad Retirement Act of 1974 to the extent included in AGI.
• Capital gain adjustments from federal column of MI-1040D or MI-4797.
• Income from business or property located in another state.
• Retirement/pension benefits; subtractions may be limited - visit Retirement and Pension Benefits.
• Dividend/interest/capital gains deduction for senior citizens; subtraction not available for individuals born after 1945.
• Social Security benefits to the extent included in AGI.
• Income earned while a resident of a Renaissance Zone that was certified or renewed before January 1, 2012.
• Contributions to the MESP, MiABLE Disability Savings Program, or First-Time Homebuyer’s Savings Account, not to exceed $5,000 for a single return or $10,000 for a joint return per year.
• The amount of an advance payment under a MET contract during the tax year.
• Michigan state and local income tax refunds to the extent included in AGI.
• Michigan homestead property tax credit to the extent included in AGI.

Items not allowed as subtractions:

• Wages, salaries, and personal compensation earned by a resident or earned in Michigan by a nonresident, unless the individual is a resident of a reciprocal state.
• Pensions, if the taxpayer did not meet the minimum requirements for receiving the pension benefits under the terms of the plan.
• Distributions from IRAs before the age of 59 ½, unless the taxpayer meets the guidelines of IRC 72(t)(2)(A)(iv).
• Distributions from deferred compensation plans.
• Unemployment benefits included in AGI.
• Sick pay, disability benefits, and wage continuation benefits paid to a taxpayer by their employer or by an insurance company under contract with the employer. Note: disability benefits are not from wage continuation plans.
• Stock purchase plans that do not qualify as pension plans under the IRC.
• IRA or Keogh contributions as these are subtracted in arriving at AGI.
• Lottery winnings.
• Out-of-state gambling winnings taxed by another state. A credit for taxes paid may be available; not applicable to nonresidents.