The Lowering MI Costs Plan (Public Act 4 of 2023) was signed into law on March 7, 2023, and will amend Michigan’s current Income Tax Act to provide a substantial tax deduction on retirement and pension benefits. The law will take effect in March 2024 and will be phased-in over the 2023 – 2026 tax years.
Phasing in the Plan
Beginning in tax year 2023 (for returns filed in 2024), Michigan taxpayers will be able to choose either:
- To use the new pension tax deduction, or
- To use the deduction provisions under existing law. More information about other available deductions can be found on the State of Michigan Retirement and Pension Benefits webpage.
Eligibility for income tax exemption under the Lowering MI Costs Plan during the phase-in period is determined by taxpayer age, as shown in the table below. In the case of married persons filing jointly, the age of the older taxpayer may be used to determine eligibility.
Phase in of Pension Tax Deduction under the Lowering MI Cost Plan
|
Birth Year |
2023 |
2024 |
2025 |
2026 and thereafter |
|---|---|---|---|---|
|
1945 and before (no changes) |
Full amount |
Full amount |
Full amount |
Full amount |
|
1946-1958 |
25% of the (25% = $14,240.25 for single filers or $28,480.50 for joint filers) |
50% of the |
75% of the |
Full 2026 amount |
|
1959 -1962 |
No exemption |
50% of the |
75% of the |
Full 2026 amount |
|
1963- 1966 |
No exemption |
No exemption |
75% of the |
Full 2026 amount |
|
1967 and after |
No exemption |
No exemption |
No exemption |
Full 2026 amount |
Option for Public Safety Retirees
Additionally, the law provides that, effective with the 2023 tax year, a taxpayer of any age receiving retirement or pension benefits based on public safety employment can elect to deduct those retirement or pension benefits without any cap. This applies to retired:
- Public police or fire department employees
- Michigan State Police troopers and sergeants
- Corrections officers employed by a county sheriff in a county jail, work camp or other county facility that housed adult prisoners
There are special rules and exclusions, so you should review this with your tax professional to determine if you are eligible.
FAQs
Retirement and pension benefits include most income that is reported on Form 1099-R for federal tax purposes. For MERS programs, this will apply to monthly benefits our members receive from a MERS Defined Benefit Plan, MERS IRA distributions, MERS Defined Contribution Plan distributions. Generally, this does not include deferred compensation income, such as distributions from the MERS 457 Program.
Not at this time. However, MERS will continue to work with the Department of Treasury on implementation guidance so that we can ensure our systems and processes are ready to comply with the new law when it goes into effect in March 2024.
You can change this at any time and as often as you like. To make a change to your Defined Benefit Plan withholding, log into your myMERS account, look under “Accounts” and select “DB Monthly Pension” then click on “View Plan Summary” on the right. You will be directed to your Account Detail – Summary, where the Tax Elections section is located and click “Edit State Tax”. If you need to make tax withholding changes to benefits you are receiving from more than one employer, you can click “Next Employer” in the tan header to switch plans.
Federal income tax laws are unchanged.
MERS cannot provide tax advice. If you have questions about your individual tax situation, you should consult with a tax professional.