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Answer: Yes. As with private retirement or pension benefits under subsection (9), the subsection (10) maximums are subject to the limitations in subsection (1)(f)(iv).
Before the enactment of PA 4, and regardless of which tier of subsection (9) the taxpayer fell into based on date of birth, the maximum amounts allowed for private retirement benefits had to be reduced by the sum of all deductions the taxpayer claimed for military compensation, including retirement or pension benefits, railroad retirement benefits, Michigan National Guard benefits, and federal and Michigan public retirement benefits. See MCL 206.30(1)(f)(iv).
Under the subsection (10) rollback of the subsection (9) limitations, for each phase, the taxpayer computes a percentage of the maximum amount of retirement benefits that the taxpayer “would be allowed to deduct for the tax year under subsection 30(1)(f)(iv) if the taxpayer’s retirement or pension benefits were subject to the limitations of that subsection only.” MCL 206.30(10)(a)-(c). In other words, regardless of the source of the taxpayer’s retirement or pension benefits, the taxpayer treats those benefits as if they were subject to the limitations applicable to private retirement or pension benefits under subsection 30(1)(f)(iv). Thus, a taxpayer electing the subsection (10) deduction must reduce the maximum amount allowed for that deduction by the sum of all deductions taken for the following: taxable military compensation, including pension or retirement benefits, railroad retirement benefits, and Michigan National Guard retirement benefits. The taxpayer would then apply the applicable phaseout percentage, depending on the tax year.
Example D : For tax year 2023, Taxpayer Eve, born in 1958, had a military pension distribution of $40,000, a private retirement distribution of $12,000, and a $10,000 public retirement distribution. To calculate her private retirement limit, she must subtract the $40,000 military pension from the maximum private amount allowed ($61,518), leaving a private retirement maximum of $21,518. Eve may deduct her full military pension of $40,000 under subsection 30(1)(e) of the MITA. And under subsection 10(a), Eve may deduct 25% of $21,518 or $5,380 of her combined $22,000 in public and private retirement benefits.