2021 Home Heating Expenses Reported by Home Heating Credit Filers

Prepared by Office of Revenue and Tax Analysis Michigan Department of Treasury June 2023

2 Background

This report is completed in accordance with MCL 206.527a(15), which requires the Michigan Department of Treasury to complete an annual study of the heating costs of taxpayers receiving a home heating credit. The home heating credit is a refundable credit designed to assist low-income families with the cost of heating their homes. The credit was created by Public Act 458 of 1978, and is funded predominantly by federal funds disbursed to Michigan through the Low-Income Home Energy Assistance Program (LIHEAP).

The credit is based on the number of exemptions for which the household is eligible. Individuals who are disabled, deaf, blind, or qualified disabled veterans are entitled to extra exemptions. Prior to 1991, recipients of Aid to Families with Dependent Children or General Assistance were not eligible for this credit, but were provided comparable benefits from other state and local programs.

Michigan law requires home heating credits to be prorated or uniformly reduced so that the expected amount of total credit payments does not exceed the available federal funding. Therefore, from 2003 through 2020, claimants received only a percentage of their credit each year: 80 percent for 2003, 76 percent for 2004 through 2006, 53 percent for 2007, 65 percent for 2008 and 2009, 52 percent for 2010 and 2011, 48 percent for 2012, 49 percent for 2013, 50 percent for 2014 and 2015, 67 percent for 2016, 75 percent for 2017 and 2018, 80 percent for 2019, 85 percent for 2020. For 2021, claimants received the full credit amount (proration percent was 100%). For 2022 credits processed in 2023, the proration percentage for the home heating credit will be 90 percent.

There are two methods, standard and alternative, to calculate a home heating credit. Claimants eligible to use both methods use the one that provides the higher benefit.

The standard credit for most claimants is equal to a standard allowance amount determined by the number of personal exemptions less 3.5 percent of household resources1. Taxpayers who rent their homestead may have heating expenses included in their rent. These taxpayers claim the credit using the standard calculation. The credit for renters with heat included in their rent is then reduced by 50 percent. Claimants with disabilities, who receive extra personal exemptions, have a greater average standard credit.

The alternative credit is equal to 70 percent of the difference between actual heating costs and 11 percent of household resources. The alternate calculation uses heating costs on the claimants’ homestead to compute the home heating credit amount, and the heating costs used for the calculation cannot be for less than 12 months, nor can heat be included in the claimant’s rent.

1 Starting in tax year 2012, the household income measure used to determine home heating credit eligibility is replaced by household resources. Household resources exclude net losses from business (including farm), rental and royalties, and also exclude net operating losses. For more information on total household resources, visit https://www.michigan.gov/taxes/iit/tax-time/total-household-resources

3

Data

The detailed information in this report was gathered from the Department of Treasury’s Data Warehouse based on the mainframe taxpayer tapes. The overall summary totals are from the TA-12720 reports.

Summary of 2021 Home Heating Credits

About 233,200 taxpayers received a total of $168.8 million in home heating credits for tax year 2021 ($63.9 million in regular credits and $104.9 million in supplemental credits), compared to a total of 203,200 taxpayers receiving $73.4 million in total credits for tax year 2020. Like tax year 2020, Michigan residents who received a regular home heating credit in the tax year also received a supplemental credit payment. Supplemental payments were in the amount of $575 for seniors, disabled, or filers with children 5 and under, and of $380 for all other claimants.

The total of about $63.9 million in regular credits represented an increase of 30,000 credits over the 2020 regular credit total, with $20.1 million (45.9 percent) more in heating assistance provided to low-income families. The average regular credit for 2021 ($274.10) was 27.1 percent higher than the 2020 average regular credit ($215.69). The home heating credit proration percentage for tax year 2021 increased to 100 percent, from 85 percent in 2020.

About 16,600 taxpayers used the alternative calculation based on energy consumption claiming credits worth $9.9 million. Including the supplemental credit, the average credit under the standard calculation was $366.84 compared to $597.01 under the alternative calculation. The alternate calculation uses heating costs on the claimants’ homestead to compute the home heating credit amount.

Home Heating Expenses

From the total claimants of the home heating credits in tax year 2021, approximately 51.6 percent reported their heating expenses on the home heating credit form. From the total of claimants who reported their heating expenses, only 2.6 percent reported that heating expenses were included in their rent. This represents about 6.3 percent of all claimants who reported that heating was included in their rent. About 64.0 percent of all claimants who reported that heating expenses were not included in their rent disclosed their heating expenses on the credit form.

Filers likely omit their heating expenses, in part, because these expenses are not required to calculate the standard credit. The attached tables are based on two subgroups of credit filers. The first subgroup is all credits with heating expenses reported. The second is all credits using the alternate credit calculation. The tables show the number of credits, reported heating expenses, and the credit amount claimed for both 2020 and 2021. The distribution of credits for each subgroup is presented by total household resources, credit amount, and heating expenses.

Tables 1 through 3 present the distribution of home heating credits for all credits with heating expenses reported on the credit form for tax year 2021 by income, credit amount, and expenses. Similar distributions are presented for 2020 in Tables 7 through 9. In order to better compare

4 2020 and 2021 statistics, supplemental credit amounts were not included in any of the tables in this report.

The average heating expense amount reported for 2021 ($1,094) was higher than the amount reported for 2020 ($1,065). Total reported expenses increased by $13.0 million to $117.1 million for 2021. Since the number of credit claimants increased proportionally less than the total credit amount claimed (9.5 percent and -35.1 percent, respectively), the average home heating credit among those credits reporting expenses increased from $237 for 2020 to $293 for 2021. The average percentage of expenses reimbursed by the home heating credit increased to 26.8 percent in 2021 compared to 22.3 percent in 2020.

Tables 4 through 6 present the distribution of home heating credits for filers using the alternative credit calculation method by income, credit amount, and heating expenses for 2021. Similar distributions are presented in Tables 10 through 12 for 2020.

In general, alternative-credit filers have lower average incomes and higher average heating expenses than filers using the standard-credit calculation method. The average alternative credit is also significantly larger.

The average heating expense amount reported by filers using the alternative calculation in 2021 increased to $2,390 (5.4 percent), compared to the average of $2,269 reported in 2020. Total credits increased by $2.0 million to $8.3 million in 2021. The average credit using the alternative calculation increased from $481 in 2020 to $580 in 2021 (20.4 percent), reflecting the proportionally smaller increase in credit claimants (9.9 percent) compared to the increase in the amount of total credits claimed (32.4 percent). Claimants using the alternative calculation had an average of 24.3 percent of their reported heating expenses reimbursed by the home heating credit in 2021, compared to the average of 21.2 percent reported in 2020.

5 Table 1 2021 Home Heating Credits Reporting Heating Expenses by Household Income

Up to $3,000 3,298 $2,103,494 $638 $1,900,371 $576 90.3% $3,001 - $6,000 4,117 3,338,670 811 2,076,636 504 62.2% $6,001 - $9,000 8,621 7,695,937 893 3,523,746 409 45.8% $9,001 - $12,000 24,896 22,628,053 909 7,790,631 313 34.4% $12,001 - $15,000 21,073 21,414,832 1,016 5,325,381 253 24.9% Over $15,000 45,030 59,876,021 1,330 10,740,442 239 17.9% Total 107,035 $117,057,007 $1,094 $31,357,207 $293 26.8% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses Total Household Resources Number of Credits

Table 2 2021 Home Heating Credits Reporting Heating Expenses by Credit Amount

Up to $100 24,314 $22,596,637 $929 $1,209,987 $50 5.4% $101 - $150 11,612 10,467,541 901 1,451,843 125 13.9% $151 - $200 11,683 10,593,694 907 2,010,612 172 19.0% $201 - $250 8,714 8,551,552 981 1,952,246 224 22.8% $251 - $300 7,902 7,951,974 1,006 2,164,988 274 27.2% More than $300 42,810 56,895,609 1,329 22,567,531 527 39.7% Total 107,035 $117,057,007 $1,094 $31,357,207 $293 26.8% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Credit Amount Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 3 2021 Home Heating Credits Reporting Heating Expenses by Heating Expenses

Up to $500 24,550 $7,429,229 $303 $5,881,018 $240 79.2% $501 - $750 21,637 13,243,707 612 5,232,950 242 39.5% $751 - $1,000 16,393 14,171,792 865 4,152,107 253 29.3% $1,001 - $1,500 19,648 23,593,567 1,201 5,323,375 271 22.6% More than $1,500 24,807 58,618,712 2,363 10,767,757 434 18.4% Total 107,035 $117,057,007 $1,094 $31,357,207 $293 26.8% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Credit as Percent of Expenses Annual Heating Expenses Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount

6 Table 4 2021 Home Heating Credits Reporting Heating Expenses by Household Income Alternate Credit Filers Only

Up to $3,000 721 $815,751 $1,131 $507,273 $704 62.2% $3,001 - $6,000 848 1,327,149 1,565 616,210 727 46.4% $6,001 - $9,000 1,625 3,049,157 1,876 1,120,206 689 36.7% $9,001 - $12,000 3,670 7,683,370 2,094 2,277,063 620 29.6% $12,001 - $15,000 3,116 7,309,275 2,346 1,692,219 543 23.2% Over $15,000 4,355 14,078,690 3,233 2,097,868 482 14.9% Total 14,335 $34,263,392 $2,390 $8,310,839 $580 24.3% Note: . The household resources limits for the alternate credit for tax year 2021 were $15,237 for one-person households, $20,504 for two, $25,775 for three, and $27,700 for all others. . Does not include supplemental credit. Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses Total Household Resources Number of Credits

Table 5 2021 Home Heating Credits Reporting Heating Expenses by Credit Amount Alternate Credit Filers Only

Up to $100 392 $737,861 $1,882 $24,943 $64 3.4% $101 - $150 393 793,216 2,018 49,693 126 6.3% $151 - $200 542 1,158,681 2,138 95,568 176 8.2% $201 - $250 662 1,415,934 2,139 148,971 225 10.5% $251 - $300 794 1,701,173 2,143 218,426 275 12.8% More than $300 11,552 28,456,527 2,463 7,773,238 673 27.3% Total 14,335 $34,263,392 $2,390 $8,310,839 $580 24.3% Note: . Does not include supplemental credit. Credit Amount Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 6 2021 Home Heating Credits Reporting Heating Expenses by Heating Expenses Alternate Credit Filers Only

Up to $500 10 $3,398 $340 $1,524 $152 44.8% $501 - $750 28 19,163 684 10,347 370 54.0% $751 - $1,000 274 243,494 889 141,367 516 58.1% $1,001 - $1,500 1,700 2,175,910 1,280 750,174 441 34.5% More than $1,500 12,323 31,821,427 2,582 7,407,427 601 23.3% Total 14,335 $34,263,392 $2,390 $8,310,839 $580 24.3% Note: . Does not include supplemental credit. Credit as Percent of Expenses Annual Heating Expenses Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount

7 Table 7 2020 Home Heating Credits Reporting Heating Expenses by Household Income

Up to $3,000 3,439 $2,341,554 $681 $1,741,228 $506 74.4% $3,001 - $6,000 3,693 2,998,367 812 1,544,547 418 51.5% $6,001 - $9,000 7,924 6,926,698 874 2,594,086 327 37.5% $9,001 - $12,000 23,904 20,823,515 871 6,023,874 252 28.9% $12,001 - $15,000 18,493 18,597,946 1,006 3,842,161 208 20.7% Over $15,000 40,261 52,353,692 1,300 7,458,591 185 14.2% Total 97,714 $104,041,772 $1,065 $23,204,487 $237 22.3% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Total Expenses Reported Average Expense Amount Total Household Resources Number of Credits Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 8 2020 Home Heating Credits Reporting Heating Expenses by Credit Amount

Up to $100 27,377 $25,309,500 $924 $1,345,366 $49 5.3% $101 - $150 13,971 12,345,290 884 1,757,509 126 14.2% $151 - $200 10,208 9,759,217 956 1,769,847 173 18.1% $201 - $250 8,709 8,569,775 984 1,948,171 224 22.7% $251 - $300 10,489 9,340,119 890 2,893,809 276 31.0% More than $300 26,960 38,717,871 1,436 13,489,785 500 34.8% Total 97,714 $104,041,772 $1,065 $23,204,487 $237 22.3% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Credit Amount Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 9 2020 Home Heating Credits Reporting Heating Expenses by Heating Expenses

Up to $500 22,577 $6,946,667 $308 $4,394,448 $195 63.3% $501 - $750 20,704 12,707,648 614 4,092,056 198 32.2% $751 - $1,000 15,294 13,229,734 865 3,157,833 206 23.9% $1,001 - $1,500 17,821 21,443,377 1,203 3,923,328 220 18.3% More than $1,500 21,318 49,714,346 2,332 7,636,822 358 15.4% Total 97,714 $104,041,772 $1,065 $23,204,487 $237 22.3% Note: . Totals include all home heating credits, both standard and alternate calculations, reporting annual heating costs. . Does not include supplemental credit. Annual Heating Expenses Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses

8 Table 10 2020 Home Heating Credits Reporting Heating Expenses by Household Income Alternate Credit Filers Only

Up to $3,000 934 $1,104,799 $1,183 $600,192 $643 54.3% $3,001 - $6,000 823 1,250,363 1,519 494,975 601 39.6% $6,001 - $9,000 1,521 2,706,841 1,780 840,351 552 31.0% $9,001 - $12,000 3,468 6,896,458 1,989 1,753,735 506 25.4% $12,001 - $15,000 2,804 6,766,642 2,413 1,330,527 475 19.7% Over $15,000 3,488 10,852,664 3,111 1,256,674 360 11.6% Total 13,038 $29,577,767 $2,269 $6,276,454 $481 21.2% Note: . The household resources limits for the alternate credit for tax year 2020 were $14,849 for one-person households, $19,982 for two, $25,119 for three, and $26,091 for all others. . Does not include supplemental credit. Total Expenses Reported Average Expense Amount Total Household Resources Number of Credits Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 11 2020 Home Heating Credits Reporting Heating Expenses by Credit Amount` Alternate Credit Filers Only

Up to $100 498 $969,924 $1,948 $31,519 $63 3.2% $101 - $150 518 1,011,003 1,952 64,962 125 6.4% $151 - $200 734 1,613,407 2,198 128,688 175 8.0% $201 - $250 852 1,822,895 2,140 191,980 225 10.5% $251 - $300 893 1,790,974 2,006 245,608 275 13.7% More than $300 9,543 22,369,564 2,344 5,613,697 588 25.1% Total 13,038 $29,577,767 $2,269 $6,276,454 $481 21.2% Note: . Does not include supplemental credit. Credit Amount Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses

Table 12 2020 Home Heating Credits Reporting Heating Expenses by Heating Expenses Alternate Credit Filers Only

Up to $500 13 $4,616 $355 $1,152 $89 25.0% $501 - $750 45 30,572 679 12,973 288 42.4% $751 - $1,000 309 273,656 886 137,349 444 50.2% $1,001 - $1,500 1,813 2,325,537 1,283 708,971 391 30.5% More than $1,500 10,858 26,943,386 2,481 5,416,009 499 20.1% Total 13,038 $29,577,767 $2,269 $6,276,454 $481 21.2% Note: . Does not include supplemental credit. Annual Heating Expenses Number of Credits Total Expenses Reported Average Expense Amount Total Credit Amount Average Credit Amount Credit as Percent of Expenses