What is a Retirement and Pension Subtraction?

It is a subtraction of all eligible retirement income from your Michigan taxable income.

The Lowering MI Costs Plan (Public Act 4 of 2023) provided taxpayers with more options to choose the best taxing situation for their retirement benefits beginning tax year 2023. Although subject to a temporary 4-year phase-in period, this law change essentially restores the pre-2012 retirement and pension subtraction while ensuring that taxpayers in unique circumstances are not harmed.

The phase-in subtraction amount is based on private pension limits, which are adjusted annually per the United States Consumer Price Index. The maximum retirement subtraction under the phase-in is the combined total of both private and public benefits eligible to be included in AGI.

Tax Year Taxpayer/Oldest Spouse Date of Birth Phase-In Subtraction 2023 January 1, 1946 - up to 25% 2024 January 1, 1946 - December 31, 1962 up to 50% 2025 January 1, 1946 - December 31, 1966 up to 75% 2026 (and beyond) N/A up to 100%

For tax year 2023 (January 1, 2023 - December 31, 2023; due April 15, 2024) and beyond, retirees can opt into any one of the following calculation methods for which they qualify for each year:

tier structure subtraction based on year of birth,

phase-in subtraction based on tax year,

Michigan employment as a qualified fire, police, and corrections retiree subtraction.