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A Revenue Administrative Bulletin (RAB) is a directive issued by the Bureau of Tax Policy. Its purpose is to promote uniform application of tax laws throughout the State by the Bureau of Tax Policy personnel and provide information and guidance to taxpayers.
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Approved: September 26, 1988
Note: This RAB was replaced by RAB 2015-18 on October 5, 2015.
RAB-88-46. This Bulletin clarifies the definition of "income" as used in Chapter 9 of the Michigan Income Tax Act, being the Property Tax Credit and Home Heating Credit. This definition shall also be applicable in computing a Farmland Preservation Tax Credit as provided in Act No. 116 of the Public Acts of 1974, as amended. Michigan Compiled Laws Section 206.510(1) contains the definition of income for the purpose of calculating this credit. This section of the Act was amended by Act No. 261 of the Public Acts of 1988. This Bulletin describes the determination of a claimant's household income when claiming a credit under Chapter 9 of the Income Tax Act for a tax year beginning on or after January 1, 1988.
Michigan's Income Tax Act, MCL 206.508(4), defines "household income" as "...all income received by all persons of a household in a tax year while members of the household." "Income" is defined in Section 206.510(1) as:
...the sum of federal adjusted gross income as defined in the internal revenue code plus all income specifically excluded or exempt from the computations of the federal adjusted gross income except that beginning with the 1988 tax year, a deduction for a carryback or carryover of a net operating loss shall not exceed federal modified taxable income as defined in Section 172(b)(2) of the Internal Revenue Code. The term does not include the first $300 of gifts in cash or kind from non-governmental sources or the first $300.00 received from awards, prizes, lottery, bingo, or other gambling winnings. Income does not include surplus foods, relief in kind supplied by a governmental agency, payments or credits under this act, any governmental grant that has to be used by the claimant for rehabilitation of the homestead, amounts deducted from monthly social security or railroad retirement benefits for medicare premiums, or contributions by an employer to life, accident, or health insurance plans. Income does not include energy assistance grants and energy assistance tax credits. Beginning with the 1977 tax year and for tax years after 1977, a person who is enrolled in an accident or health insurance plan may deduct from income the amount the person has paid in premiums in the tax year for that insurance plan for the person's family.
Income that has been specifically excluded or exempt from the computations of Federal adjusted gross income is generally income that will not be subject to tax in the year actually or constructively received or in a subsequent taxable year under the Internal Revenue Code (IRC) or by Federal laws other than the IRC. Excluded or exempt income includes, but is not limited to, the following.
For taxable years beginning on or after January 1, 1988, a claimant may not reduce his/her household income by the excess of a deduction of a Federal net operating loss (NOL) over the claimant's modified taxable income calculated pursuant to Section 172(b)(2) of the IRC.
Example: In 1987, Taxpayer A computed a Federal net operating loss of $32,000.00. He elected to carry this loss forward to 1988 on his Federal income tax return. He is allowed to claim the full amount of the net operating loss in the determination of his Federal adjusted gross income in 1988. For Michigan household income purposes, the deduction of the NOL may not exceed his modified taxable income as computed pursuant to Section 172(b)(2) of the IRC.
Assuming that in taxable year 1988 the taxpayer has modified taxable income of $15,000.00, the maximum NOL deduction he is allowed to claim for the purpose of calculating household income in 1988 is $15,000.00. The excess NOL is not allowed as a deduction from household income.