Here’s what Michigan’s pension tax repeal would mean for seniors

Gov. says Michigan seniors need tax money in their pockets

Gov. Gretchen Whitmer is getting ready for when the Democratic Party takes control of the Michigan Legislature.

Several items are on the to-do list, such as changing the right-to-work law and eliminating the state’s pension tax. It all falls under the category of “every little bit helps.”

Former Michigan Gov. Rick Snyder implemented the pension tax because he didn’t think special tax carve-outs were fair. Whitmer says Michigan’s seniors need the tax money in their pockets.

Deborah Clark of Hazel Park bought a few items at the grocery store, which took a sizable bite out of her tight budget.

“Everything is overpriced,” Clark said.

She’s on retirement’s doorstep, as she plans to retire in January.

Rod Meloni: “You’re looking forward to a small pension?”

Clark: “Yes.”

Rod Meloni: “What do you think about the state income tax on that pension?”

Clark: “They need to stop that tax.”

Whitmer’s office on Wednesday, Dec. 14, said the governor has introduced a plan to repeal retirement tax altogether.

“We are currently working with the incoming leaders on a legislative agenda for next year that will help working families across the state, but our north star is always lowering costs, cutting taxes, and growing our economy,” Whitmer’s office said. “In our most recent budget proposal, the governor put forward a plan to repeal the retirement tax.”

Here’s how it currently works:

If you’re filing single and were born before 1946, you get a $54,404 income exemption. That is doubled for married couples filing jointly.

If you were born between 1946 and 1952, your first $20,000 is exempt for singles, and double for married couples. If your birthday is after 1952, you’re expected to pay the full tax amount.

So let’s say your annual pension is paying you $25,000. The state income tax is 4.25%, which means you would have $1,062.50 on a tax bill in 2022.

Its repeal would undoubtedly be welcomed news.

“That would be great,” Clark said. “I would be happy about that.”

One of the intricacies is if you are married, the state considers the older senior’s birthdate to determine where you fit on that tax ladder.

There’s yet to be a specific date or wording for when a repeal might happen.

About the Authors:

Rod Meloni is an Emmy Award-winning Business Editor on Local 4 News and a Certified Financial Planner™ Professional.

Brandon Carr is a digital content producer for ClickOnDetroit and has been with WDIV Local 4 since November 2021. Brandon is the 2015 Solomon Kinloch Humanitarian award recipient for Community Service.