Post-2011 Michigan Tax Treatment of Retirement Distributions

Under PA 38 and later amendatory Acts, the retirement subtraction for certain recipients became limited based on the taxpayer’s date of birth (or for joint filers, the date of birth of the older spouse) and separated taxpayers into three age-based tiers (See section 30(9)). In addition, a standard deduction became available to certain taxpayers, and retirees from government agencies not covered by the Federal Social Security Act were offered treatment comparable to covered retirees. Generally, these changes were effective beginning with tax year 2012, as described below.

Note: In some cases, these provisions require taxpayers to choose between one set of subtractions or another. Michigan forms use a shortcut method to effectively ensure the lowest taxable income for filers calculating between the options. The forms automatically apply the standard deduction, discussed below, when that amount exceeds the sum of certain other subtractions. The taxpayer reports as though they are still claiming those certain other subtractions and a remaining amount, or “residual standard deduction,” is calculated and reported, if applicable. The explanations in this RAB generally reflect the forms shortcut method.

Tier 1 (MCL 206.30(9)(a)): Taxpayers born before 1946 were not subject to any limitations on retirement income deductions other than those in place under prior law, meaning the subtraction for retirees in this tier remained unlimited for all retirement benefits received from Michigan or federal public sources; the subtraction for public retirement benefits received from another state’s state or local government continued to be subject to the lower of the inflation-indexed private retirement maximum or the amount allowed by the other state to its residents on Michigan-earned retirement income; and retirement benefits received from private sources were subject to the inflation-indexed private retirement maximum, which for tax year 2025 is$65,897 for a single filer and $131,794 for joint filers. The private retirement maximum was still required to be reduced by any public retirement subtraction and any amounts subtracted for taxable railroad retirement benefits or for military retirement benefits due to service in the U.S. Armed Forces or Michigan National Guard.

Tier 2 (MCL 206.30(9)(b)-(c)): For taxpayers born in 1946 through 1952, the maximum retirement income deduction was $20,000 for a single filer or $40,000 for joint filers, reduced by any amounts claimed for taxable railroad retirement benefits or for military retirement benefits due to service in the U.S. Armed Forces or Michigan National Guard. At age 67, the $20,000/$40,000 deduction was no longer restricted to retirement income, but could be applied to all income, and was therefore referred to as the standard deduction . However, that $20,000/$40,000 standard deduction was reduced by any deductions claimed for taxable railroad retirement benefits, compensation (including retirement benefits) due to service in the U.S. Armed Forces, or retirement benefits due to service in the Michigan National Guard.

For taxpayers born 1946-1952 who received retirement income from a governmental agency that was not covered by the federal Social Security Act, the “uncovered” taxpayer could deduct retirement benefits up to $35,000 on a single return and $55,000 on a joint return (or $70,000 on a joint return if both spouses were “uncovered”). After that taxpayer reached age 67, this deduction was available against all income. The maximum deduction had to be reduced by any deductions claimed for taxable railroad retirement benefits, compensation (including retirement benefits) due to service in the U.S. Armed Forces, or retirement benefits due to service in the Michigan National Guard.

Tier 3 (MCL 206.30(9)(c)-(e)): For taxpayers born after 1952, generally there was no retirement income deduction; however, upon reaching age 67, taxpayers in this tier were eligible for the $20,000/$40,000 standard deduction against all income. Their standard deduction was reduced by the personal exemption and any deductions claimed for taxable Social Security, taxable railroad retirement benefits, compensation (including retirement benefits) due to service in the U.S. Armed Forces, or retirement benefits due to service in the Michigan National Guard. For tax years 2026 through 2028, see 2025 PA 24 and Issue 11 in this RAB.

Special rules applied for “uncovered” individuals born after 1952, depending on when they retired. Those rules applied as follows:

“Uncovered” individuals age 62 through 66 who were retired as of January 1, 2013, could deduct retirement or pension benefits up to $35,000 for a single return, $55,000 for a joint return, or $70,000 for a joint return if both individuals were “uncovered”. For some taxpayers, the retirement subtraction may have been reduced by amounts deducted for taxable railroad retirement benefits or retirement benefits due to service in U.S. Armed Forces or Michigan National Guard.

Once these individuals reached age 67, they could deduct up to $35,000 for a single return, $55,000 for a joint return, or $70,000 for a joint return if both individuals were “uncovered”, against all income. However, those “uncovered” standard deduction amounts were reduced by amounts deducted for taxable railroad retirement benefits, compensation (including retirement benefits) due to service in the U.S. Armed Forces, or retirement benefits due to service in the Michigan National Guard.

“Uncovered” individuals who were not retired as of January 1, 2013, and had not reached the age of 67 could deduct retirement or pension benefits up to $15,000 for a single return, $15,000 for a joint return, or $30,000 if both spouses were “uncovered”. For some taxpayers, the retirement subtraction may have been reduced by amounts deducted for taxable railroad retirement benefits or retirement benefits due to service in U.S. Armed Forces or Michigan National Guard.

Once these individuals reached age 67, they could claim the $20,000/$40,000 standard deduction against all income, reduced by the personal exemption and any deductions claimed for taxable Social Security, taxable railroad retirement benefits, compensation (including retirement benefits) due to service in the U.S. Armed Forces, or retirement benefits due to service in the Michigan National Guard. For tax years 2026 through 2028, see 2025 PA 24 and Issue 11 in this RAB.

Special rules applied for determining the tier limitation applicable to surviving spouses. A surviving spouse could compute the subtraction based on the date of birth of an older deceased spouse as long as a retirement or Social Security income subtraction had been claimed on a joint return for the tax year in which the spouse died and as long as the surviving spouse had not since remarried. Beginning in 2020, a surviving spouse born after 1945 who had reached the age of 67 and had not remarried could elect to take the greater of the standard deduction against all types of income or the retirement income deduction based on the date of birth of the older deceased spouse. MCL 206.30(9)(f).