Michigan 529 Plan Tax Deduction

On March 20, 2023   /   Michigan Taxes  
Michigan 529 Plan Tax Deduction
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Michigan 529 Basics

A 529 plan is a tax-advantaged savings/investment plan designed to encourage saving for the future expenses of a designated beneficiary (typically one’s child or grandchild). The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations.

Have a 529 Tax question and live in Michigan? Give ATS Advisors a call or send us an email!

Michigan 529 Plan Tax Deduction?

All 529 account investment earnings are exempt from state and federal taxes. Withdrawals made for qualified expenses — which now include both K-12 and college education costs — are not penalized by taxes.

Michigan law further provides a state tax deduction for contributions made to a Michigan Education Savings Program (529) account, up to $5,000 for individuals and $10,000 for joint filers. The Michigan 529 Plan Tax Deduction is available for the amount of contributions minus the amount of qualified withdrawals made within a given tax year.

Types of Section 529 College Savings Plans:

There are two types of 529 college savings plans: prepaid tuition plans and savings plans:

  • Prepaid Tuition Plans allow for the pre-purchase of tuition based on today’s rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.

– The Michigan Education Trust (MET) is Michigan’s 529 prepaid tuition plan.

  • Savings Plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states.

– The Michigan Education Savings Program (MESP) is Michigan’s direct sold 529 savings plan.

– The MI 529 Advisor Plan is Michigan’s advisor sold savings plan.

 

How do 529 accounts work?

529 accounts are education savings plans operated by a state or educational institution. They are named after Section 529 of the U.S. Internal Revenue Code that governs these types of savings plans. Contributions earn money from investments and are able to be used for an individual child’s educational expenses.

What kind of K-12 expenses can 529 dollars now be used for tax-free?

Changes made in 2017 to the federal tax code expand the definition of qualified expenses to include “tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.” This does not include tuition for pre-kindergarten schools or programs.

Legislation currently being considered by Congress would further expand the definition to include homeschool expenses, as well as several types of expenses that could benefit children enrolled in public or private schools: curriculum or online educational materials; tutoring services; AP, SAT, ACT or standardized achievement tests; dual enrollment higher-education programs; or therapies to help students with disabilities or other special learning needs.

Are separate 529 accounts needed for a child’s K-12 expenses and college expenses?

No. Federal law expanded the definition of qualified expense to include tuition for elementary and secondary education. This is in effect for 2018. A single 529 account for each child (considered the “designated beneficiary”) now may be used to pay for either elementary and secondary tuition, higher education expenses or both.

Who can set up a 529 account?

Any person can set up a 529 account and name an individual child as a beneficiary. Individuals do not need to have set up a 529 account in order to make contributions. Per IRS guidance, anyone can set up a 529 and name anyone as a beneficiary — a relative, a friend, even themselves. Check out the case studies below to see sample scenarios that show how a 529 plan may benefit a family like yours.

Michigan law also enables any of the following to open and contribute specifically to MESP accounts: “A state or local government agency or instrumentality, an entity exempt from taxation under section 501(c)(3) of the internal revenue code, an estate or trust, or a corporation that enters into a Michigan education savings program agreement.”

Are there any limits on 529 accounts?

There is no limit on 529 withdrawals to pay for higher education, but federal law limits withdrawals for elementary and secondary education expenses to $10,000 per year. Different 529 plans have maximum allowable account balances. For example, the MESP limits the amount to $500,000.

Also, according to the website 529 K12 Facts: “You can donate up to $15,000 per year ($30,000 if married filing jointly) beginning in tax year 2018 without incurring federal gift tax. Contributions of up to $75,000 ($150,000 if married filing jointly) also can be treated as having been made over a five-year period, for federal gift tax purposes.”

 

529 Example:

Parents start saving in a 529 plan at their child’s birth, contributing $250/month for 14 years (equaling $42,000). The tax-

deferred growth in the 529 plan’s earnings means $10,000 more of their own funds are available than if

 they had invested in a standard taxable account. They decide to enroll their child in a private high school. Enough money is there to pay up to $10,000 for each year’s tuition, with remaining plan dollars free to help pay for higher education.

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6 Changes to Michigan Taxes for 2022

On March 13, 2023   /   Uncategorized  
6 Changes to Michigan Taxes for 2022
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Here are 6 Changes to Michigan Taxes for 2022 according to Michigan.gov/taxes

  • Exemption allowances and the tax rate:
    • $5,000 for personal and dependent exemptions
    • $2,900 for special exemptions
    • $400 for qualified disabled veterans
    • $5,000 for number of certificates of stillbirth from MDHHS
    • 4.25% tax rate
  • Flow-through Entity Tax Credit

    A member of a flow-through entity that elected to pay the Michigan flow-through entity tax may claim a refundable credit, and will report an addition on Schedule 1. Tax year 2022 MI-1040 or MI-1041 returns claiming this credit are eligible for e-file. For additional information, see the instructions for MI-1040, line 29 and Schedule 1, line 2, or the instructions for Form MI-1041.

  • Schedule 1 Additions and Subtractions:
    • Line 25: Tier 3 Michigan Standard Deduction. Taxpayers who were born during the period January 1, 1953 through January 1, 1956, and reached the age of 67 on or before December 31, 2022, may be eligible for a Tier 3 Michigan Standard Deduction. This deduction is up to $20,000 for a return filed as single or married filing separately, or up to $40,000 for a married filing jointly return. Exemption(s) claimed on MI-1040, lines 9a and 9d, taxable Social Security benefits, military compensation (including retirement benefits), Michigan National Guard retirement benefits and railroad retirement benefits included in AGI may reduce the amount eligible to be claimed on this line. To determine your deduction, complete Worksheet 2.

      Note: Filers who qualify for the Michigan Standard Deduction should not file Form 4884.

    • Line 27 – Senior citizens born prior to 1946 (or the unremarried surviving spouse of a decedent born prior to 1946 who also died after reaching age 65) may subtract interest, dividends, and capital gains included in AGI. This subtraction is limited to a maximum of $12,697 on a single return or $25,394 on a joint return, less any deduction for retirement benefits. (See page 16 in the MI-1040 Instruction Booklet)

      Dividend/Interest/Capital Gains Deduction Estimator

  • Pension Schedule (Form 4884):
    • Who may Claim a Pension Subtraction?
      • TIER 1

        Taxpayers born before 1946 may subtract qualified private pensions up to $56,961 for single or married filing separately filers and $113,922 for joint filers.

      • TIER 2

        Taxpayers born January 1, 1946 through December 31, 1952 should not file Form 4884. A single filer may subtract $20,000 against all income and joint filers may subtract $40,000 against all income as the Tier 2 Michigan Standard Deduction on Schedule 1, line 23.

        Taxpayers who receive retirement benefits from employment with a governmental agency exempt from Social Security may deduct up to $35,000 against all income for a single filer and $55,000 for joint filers. If both spouses on a joint return receive Social Security exempt retirement benefits, a standard deduction of $70,000 is allowed.

        Surviving spouses who were born after 1945 and have reached the age of 67, have not remarried, and claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died, may elect to the take the larger of the retirement and pension benefits deduction based on the older deceased spouse’s year of birth subject to the limits available for a single filer  or the survivor’s Michigan Standard Deduction.

      • TIER 3

        Taxpayers born January 1, 1953 through January 1, 1956 should not file Form 4884. Instead, taxpayers may be eligible for a Tier 3 Michigan Standard Deduction. This deduction is up to $20,000 for a return filed as single or married filing separately, or up to $40,000 for a married filing jointly return. Exemption(s) claimed on MI-1040, lines 9a and 9d, taxable Social Security benefits, military compensation (including retirement benefits), Michigan National Guard retirement benefits and railroad retirement benefits included in AGI may reduce the amount eligible to be claimed on this line. To determine your Tier 3 Michigan Standard Deduction on Schedule 1, line 25, complete Worksheet 2 in the MI-1040 booklet.

        Surviving spouses who were born after 1945 and have reached the age of 67, have not remarried, and claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died, may elect to the take the retirement and pension benefits deduction based on the older deceased spouse’s year of birth subject to the limits available for a single filer or the survivor’s Michigan Standard Deduction.

        Taxpayers born after January 1, 1956 but before January 2, 1961 who have reached age 62 and receive retirement benefits from employment with a governmental agency exempt from Social Security may deduct up to $15,000 in qualifying  retirement and pension benefits. If both spouses on a joint return receive Social Security exempt retirement benefits, the maximum deduction increases to $30,000. See Form 4884, line 18 instructions for more information.

        Taxpayers born after January 1, 1956 who receive retirement benefits from a governmental agency exempt from Social Security and were retired as of January 1, 2013 may deduct up to $35,000 in qualifying pension benefits if single or married filing separately or $55,000 if married filing jointly. If both spouses on a joint return qualify, the maximum deduction increases to $70,000.

        All other taxpayers born after  January 1, 1956, all retirement and pension benefits are taxable and are not entitled to a pension subtraction.

      • Surviving spouse

        If a surviving spouse claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died and the surviving spouse has not remarried, then the surviving spouse may claim the retirement and pension benefits subtraction that would have applied based on the year of birth of the older of the surviving spouse or the deceased spouse. For more information, see instructions.

  • Homestead Property Tax Credit
    • Line 9 – Taxable Value $143,600
    • Line 33 – Total Household Resources $63,000
    • The homestead property tax credit phase-out begins when your total household resources exceed $54,000.
    • Maximum Property Tax credit allowed $1,600
  • Home Heating Credit (MI-1040CR-7):
    • Line 42 – Maximum heating costs $3,430
    • Line 47 – Home Heating Credit. Multiply line 46 by 90%

    Note: The last day to file a 2022 Home Heating Credit is September 30, 2023. No filing extensions are allowed.

    TABLE A: 2022 Home Heating Credit (MI-1040CR-7) Standard Allowance

    NOTE: If you lived in your homestead for less than 12 months, you must prorate your standard allowance. (see instructions in the MI-1040CR-7 booklet).

    EXEMPTIONS STANDARD ALLOWANCE INCOME CEILING
    0-1 $524 $14,957
    2 $706 $20,157
    3 $888 $25,357
    4 $1,069 $30,528
    5 $1,251 $35,729
    6 $1,433 $40,929
    +182 for each exemption over 6 + $5,200 for each exemption over 6

    TABLE B: 2022 Home Heating Credit (MI-1040CR-7) Alternate Credit Computation

    Exemptions and Maximum Income for the Alternate Credit Computation

    EXEMPTIONS MAXIMUM INCOME
    0-1 $16,387
    2 $22,051
    3 $27,720
    4 $30,364
  • New Tax Treatment of Wagering Losses for Casual Gamblers Under the Michigan Income Tax Act
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Michigan Personal Property Tax Exemption 2023

On March 6, 2023   /   Michigan Taxes  
Michigan Personal Property Tax Exemption 2023
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Questions about the Michigan Personal Property Tax Exemption 2023 ?

Contact Plymouth Michigans ATS Advisors!

The General Property Tax Act provides for exemptions for certain categories of personal property including: Small Business Taxpayer Exemption, Eligible Manufacturing Personal Property and Act 328 – New Personal Property. These links will provide information on each of these exemptions including determining eligibility and how to claim the exemption. Email us if you have questions at State-Tax-Commission@michigan.gov.

Eligible Manufacturing Personal Property (EMPP) MCL 211.9m and MCL 211.9n Exemption

Beginning December 31, 2015, qualified new personal property and qualified previously existing personal property is exempt from taxation.

Qualified New Personal Property is defined as property that was initially placed in service in this state or outside of the state after December 31, 2012 or that was construction in progress on or after December 31, 2012 that had not been placed in service in this state or outside of this state before 2013 and is eligible manufacturing personal property (EMPP).

Qualified Previously Existing Personal Property means personal property that was first placed in service within this state or outside of this state more than 10 years before the current calendar year and is eligible manufacturing personal property (EMPP).

Bulletins

Small Business Taxpayer Exemption – MCL 211.9o

The small business taxpayer personal property exemption provides a complete exemption from personal property tax for industrial or commercial personal property when the combined true cash value of all industrial personal property and commercial personal property owned by, leased by or in the possession of the owner or a related entity claiming the exemption is less than $80,000 in the local tax collecting unit and the property is not leased to or used by a person that previously owned the property or a person that, directly or indirectly controls, is controlled by, or under common control with the person that previously owned the property. Form 5076 must be filed with the local tax collecting unit no later than February 20.

Statute

Assessor Guide to Small Business Taxpayer Exemption

Forms

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12 Tax Write Offs for 2022

On March 1, 2023   /   IRS  
12 Tax Write Offs for 2022
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Interested in saving some money this tax year? Here are 12 Tax Write Offs for 2022 :

As always, Contact ATS Advisors with any questions!

Taxpayers may be able to take advantage of numerous deductions and credits on their taxes each year that can help them pay a lower amount of taxes—or receive a refund from the IRS.

You may be able to write off the following twelve common write-offs, which include both tax credits and deductions. Additionally, you may be entitled to write-offs on your state taxes, so check your state tax department’s website to see if you qualify.

1. Property Taxes

Property taxes may be deductible if you itemize, but a limit comes into play.

Under a massive tax overhaul that was signed into law in 2017, deductible state and local income taxes (SALT), including property taxes, are capped at $10,000.

The limit is scheduled to last through the 2025 tax year, unless Congress extends it.

2. Mortgage Interest

The interest you pay for your mortgage can be deducted from your taxes. The write-off is limited to interest on up to $750,000 ($375,000 for married-filing-separately taxpayers) of mortgage debt incurred after Dec. 15, 2017.

3. State Taxes Paid

Again, you can deduct state income taxes that are paid, but the write-off is limited to up to $10,000, which includes all deductible state and local taxes.

4. Homeowner Deductions

You can deduct mortgage insurance premiums, mortgage interest and real estate taxes that you pay during the year for your home.

5. Charitable Contributions

Generally, you can deduct charitable contributions of cash totaling up to 60% of your adjusted gross income, or AGI. Donations of items or property also are considered deductible charitable contributions.

6. Medical Expenses

Medical and dental expenses qualify for a tax deduction, though you can deduct only the costs that exceed 7.5% of your AGI.

To claim medical-related expenses on your 2022 tax return next year, they must have been paid in 2022, unless they were charged to a credit card. In those cases, you can deduct the expenses in the year you charged the card, not necessarily the year in which you repaid them.

Trips to your doctor’s office or hospital appointments qualify for medical mileage. For 2022, you can deduct 18 cents a mile for travel you made for medical purposes through June 2022. The amount has increased to 22 cents a mile from July 1, 2022, through the end of the year.

7. Lifetime Learning Credit Education Credits

The lifetime learning credit allows people to claim a tax credit for taking classes at a community college, university or other higher education institution. The maximum amount of expenses you can deduct is up to $10,000 for an unlimited number of years. However, the top credit you can receive per tax return is worth $2,000.

The credit allows for a dollar-for-dollar reduction on the amount of taxes owed. The expenses can include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child. The credit isn’t refundable, which means it can be used to pay any taxes you owe, but you can’t receive any of it as a refund.

The amount of your credit depends on your income. You should check IRS Publication 170 to determine the income qualifications.

Note: This credit can’t be claimed in the same year as the American opportunity tax credit using the same expenses.

8. American Opportunity Tax Education Credit

The American opportunity tax credit offers a tax break for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. If the amount of taxes you owe is zero because of this credit, the IRS says 40% of any remaining amount of the credit (a maximum of $1,000) can be refunded to you.

The credit is worth 100% of the first $2,000 of qualified education expenses paid for each eligible student and 25% of the next $2,000 of qualified education expenses.

“If you, your spouse, or child are in school, make sure to look deeper into education credits,” says Daniel Fan, managing director and head of wealth planning at First Foundation Advisors, an Irvine, California-based financial institution. “For students who are in the first four years of college, this credit could provide greater tax savings than the lifetime learning credit.”

Qualifying expenses include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child.

The amount of your credit is determined by your income. This credit can’t be claimed the same year the lifetime learning credit is claimed.

9. Retirement Credits

The contributions you make to a retirement plan such as a 401(k) or a traditional or Roth IRA give you a tax credit of 50%, 20% or 10%, depending on your adjusted gross income that you report on Form 1040. Any rollover contributions do not qualify for the credit.

The maximum contribution amount that qualifies for the credit is $2,000 ($4,000 if married filing jointly), making the maximum possible credit $1,000 ($2,000 if married filing jointly). The IRS has a chart to help calculate your credit.

10. IRA Contributions

The maximum contribution for 2022 in a traditional or Roth IRA is $6,000, plus another $1,000 for people who are 50 years old or more. Your contributions to a traditional IRA are tax-deductible.

11. Self-Employed Health Care Premiums

If you’re self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse and your dependents, whether or not you itemize deductions, says Robert Charron, a CPA in charge of the tax department at Friedman, a New York-based accounting firm.

If you have kids under 27 at the end of 2022, you can also deduct their premiums—even if they aren’t dependents.

However, you can’t claim this deduction if you’re eligible to participate in a subsidized health plan from an employer for either yourself, your spouse, dependents or kids under 27.

12. Student Loan Interest

Student loan interest can be written off your taxes, but the maximum interest you can deduct is $2,500. The amount you may write off depends on your income. Review the previously mentioned IRS Publication 970 for more information.

So thats it! There are 12 Tax Write Offs for 2022 that you can use to your advantage.

What Is the Standard Deduction?

The standard deduction is an automatic deduction from your taxable income that you can receive without any itemizing.

Before deciding to claim the standard deduction, it’s a good idea to compare your standard deduction amount with your total itemized deductions.

For the 2022 tax year (meaning the taxes you’ll file in 2023), the standard deduction amounts are: :

  • $12,950 for single and married filing separate taxpayers
  • $19,400 for head of household taxpayers
  • $25,900 for married taxpayers filing jointly or qualifying widow(er)s

Tips for Writing Off Your Expenses and Charitable Contributions

Keeping a good record of your income and deductible expenses in a spreadsheet throughout the year can make filing taxes a lot quicker and easier.

“Preparing and organizing everything for your taxes can seem like a daunting task, but a lot of people come across the same common mistakes,” Fan says. “Don’t forget to always include all sources of income, make sure you are looking for and including all possible deductions, and understand the difference between a deduction and a credit.”

Some common mistakes people make include:

  • Not listing all income
  • Not accounting for all possible deductions
  • Not taking advantage of contributions to retirement accounts to increase tax-deductible contributions.

If you are filing taxes with several deductions, start by gathering all the appropriate paperwork, such as Form 1098 for mortgage interest rate deductions. For other deductions, which are based on expenses or contributions, keep accurate records.

“If you itemize your deductions, then keep track of qualified medical expenses, charitable contributions made, or any other deductions which can be itemized,” says Fan. “If you are likely to take the standard deduction, then record keeping will not be as important.”

“12 Common Tax Write-Offs You Can Claim On Your Next Return” Sourced From FORBES, Ellen Chang

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Plymouth Michigan Property Tax

On February 22, 2023   /   Michigan Taxes  
Plymouth Michigan Property Tax
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Are you a new or existing Plymouth, MI resident? Wondering about Plymouth Michigan Property Tax or what taxes Plymouth has?

Give your trusted ATS Plymouth tax advisors a call!

 

Summer Taxes

Your summer tax bill includes the tax levies for:

  • City of Plymouth
  • Plymouth-Canton Schools
  • State Education Tax (SET)
  • Wayne County Regional Educational Service Agency(RESA)
  • Enhanced Wayne County Regional Educational Service Agency (ENH RESA)
  • Schoolcraft College
  • Wayne County Operating

Summer tax bills are due August 10 annually.

Summer Tax Bills are payable through August 10 without penalty. They may be paid at the City Hall counter, placed in the drop box next to the book return at the library,  or deposited in the drop box in the City Hall lobby if the counter is closed.

 

Winter Taxes

Your winter tax bill includes the tax levies for:

  • Wayne County Voted Millage
  • Wayne County Jail
  • Wayne County Parks
  • Plymouth District Library
  • Huron Clinton Metro Authority
  • Detroit Regional Zoo
  • Detroit Institute of Arts Museum

Winter tax bills are due February 28 each year.

Winter Tax Bills are payable through February 28 without penalty. They may be paid at the City Hall counter, placed in the drop box next to the book return at the library,  or deposited in the drop box in the City Hall lobby if the counter is closed. All tax payments placed in the drop boxes by December 31 will be receipted as paid in the current year. Additional information is provided on the back of your bill. Please review your tax bill to check the correctness of the information appearing on it. If you receive a bill in error, please return the tax bill to the City Treasurer’s Office. If you are the owner or agent of the property but the name or address information is incorrect, please correct it on the bill and mail it back with your payment. If you need additional information, please call the City Treasurer’s Office at 734- 453-1234, during regular business hours.

Here are the current millage rates.

In addition to paying your tax bill in person on via mail, there are several other options.

Online Payments

You can  pay your taxes online via a credit/debit card through the online property information site. There is a convenience fee associated with using this service.

Direct Payment
You may request that your payment be made automatically by completing Direct Payment Enrollment form.


Special Payment Deferments

The State of Michigan has a program that allows certain property owners to defer their tax payments.  Information on this program is available on the state’s website. The Step Forward Michigan program also provides property tax assistance.

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Does Michigan Have a State Inheritance Tax?

On February 16, 2023   /   Michigan Taxes  
Does Michigan Have a State Inheritance Tax?
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Does Michigan Have a State Inheritance Tax?

Yes, the Inheritance Tax is still in effect, but only for those individuals who inherited from a person who died on or before September 30, 1993.

For heirs of individuals who passed after 1993, inheritances from a Michigan estate that includes only property located in Michigan will not be subject to inheritance tax. But, if the estate includes property located in other states, a beneficiary who inherits the property may be subject to tax in that state.

Although there is technically no longer a Michigan Inheritance Tax, as of 2023 six states still have one: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you are the heir of a loved one who is a Michigan resident that passed away while owning property in one of these 6 states, you might still have to pay an inheritance tax on that property based on the state’s laws.

There are also certain situations with respect to “After Discovered Assets” where the Michigan Inheritance Tax may still be a problem. Continue reading to learn more…

Have a Question? Contact ATS Advisors

Contact ATS

 

What Does The Michigan Inheritance Tax Consider As An “After Discovered Asset”?

The Michigan Inheritance Tax considers something as an “After Discovered Asset” when an estate has been closed, but a new asset has been found that was not included in the original estate. If this situation applies to you, the Michigan Department of Treasury has instructions on what you should do in this situation.

What Is The Difference Between The Michigan Inheritance Tax And The Estate Tax?

The major difference between the Michigan Inheritance Tax and the Estate Tax is that the Estate Tax is a tax imposed on the estate itself, whereas the Inheritance Tax is a tax on the actual heir of the property.

Does Michigan Have An Estate Tax?

There is no longer a Michigan Inheritance Tax. Additionally, the State of Michigan does not have an Estate Tax either. However, there is a Federal Estate Tax that your estate may be subject to.

What Is The Federal Estate Tax?

The Estate Tax, commonly referred to as the “Death Tax”, is a tax on your right to transfer property at your death. Proper Estate Planning done prior to death can help you reduce both Estate Taxes and Inheritance Taxes if you own property in a state that still has Inheritance Tax.

Does Michigan Have a State Inheritance Tax? – 2023

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Is Michigan Tax Friendly For Retirees?

On February 8, 2023   /   Michigan Taxes  
Is Michigan Tax Friendly For Retirees?
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Michigan Retiree Tax Information

Is Michigan Tax Friendly For Retirees? In short, Michigan is a relatively tax-friendly destination for retirees. It does not tax Social Security and it provides a sizable deduction for seniors on other types of retirement income. Sales taxes are somewhat below average, while property taxes are above average. Michigan does not have an estate tax or an inheritance tax.

ATS Advisors is a family owned Michigan small business aimed at helping fellow Michiganders with all of their tax and financial situations. Contact ATS to talk to us!

Is Social Security taxable in Michigan?

Social Security payments are not taxed in Michigan. Any Social Security retirement income that is considered taxable on your federal income tax return can be subtracted from your Adjusted Gross Income (AGI) when filing your state taxes in Michigan.

Are other forms of retirement income taxable in Michigan?

Yes, but seniors can deduct most or all of this income. The deduction applies to income from retirement savings accounts and pensions. It varies depending on the age of the filer.

Taxpayers born before 1946 are eligible for a deduction against private pension income of $54,404 per person ($108,808 for joint filers) for tax year 2022. These taxpayers can also subtract interest, dividends and capital gains up to $12,127 for single filers and $24,254 for joint filers. Public pension income is completely exempt.

Taxpayers born between 1946 and 1952 can claim a deduction against all income of $20,000 ($40,000 for joint filers). For income from a government pension, that figure is $35,000 for single filers and $55,000 for joint filers ($70,000 for joint filers if each filer has such a pension). Taxpayers born after 1952 can claim the same deductions once they turn 67.

So, if you had $60,000 of 401(k) income and you were born in 1949, you would be able to deduct $20,000 of that income. The remaining $40,000 would be taxed at the Michigan flat income tax rate of 4.25%.

How high are property taxes in Michigan?

The average effective property tax rate in Michigan is 1.32%, which is pretty high. That adds up to about $1,320 for every $100,000 in home value. Of course, property taxes are higher in some areas than in others. In Wayne County the average effective rate is 2.16%. In Mackinac County, it is less than half that at 1.06%.

What is the Michigan homestead property tax credit?

The homestead property tax credit is available to homeowners in Michigan who meet certain eligibility requirements for income and property value. Homeowners who are eligible can claim a credit on all property taxes owed.

The credit application is filed with your annual income tax return. To be eligible, you must have household income of $60,600 or less and your home’s taxable value must be no more than $136,600. You also need to have owned or were contracted to pay rent while occupying a Michigan homestead for at least 6 months during the year where property taxes and/or service fees were imposed.

You are not eligible if 100% of your household resources were received from the Michigan Department of Health and Human services.

Another form of property tax relief available to homeowners in Michigan is the principal residence exemption, or PRE. This allows homeowners to exempt their primary residence from up to 18 mills of local school district operating taxes. (A mill is one tenth of a percent, so 18 mills is 1.8%, which applies to taxable value.)

How high are sales taxes in Michigan?

The state sales tax rate in Michigan is 6%, which is slightly above average. But because the state has no local sales taxes, its state and local combined rates are also below average.

What other Michigan taxes should I be concerned about?

If you plan on working during retirement, keep in mind that many Michigan cities collect their own income taxes in addition to the state income tax rate of 4.25%. In general, these city income taxes range from about 1% to 1.5%, but the Detroit city income tax is 2.4%. Those taxes do not apply to any form of retirement income, however.

Michigan does not have an estate tax or inheritance tax.

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Tax Calculator Michigan Married

On January 30, 2023   /   Michigan Taxes  
Tax Calculator Michigan Married
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Tax Calculator Michigan Married – 2023

Welcome to ATS Advisors, your trusted Michigan Tax Experts. If you would like to file with us this year, contact us today!

Need to calculate your Michigan taxes? Click the link below!

MICHIGAN TAX CALCULATOR

What You Need To Know About Michigan State Taxes

The state of Michigan requires you to pay taxes if you’re a resident or nonresident that receives income from a Michigan source. The state income tax rate is 4.25%, and the sales tax rate is 6%.

Michigan Income Tax Brackets and Rates

Michigan has a flat tax rate of 4.25% for 2021, meaning everyone pays the same state income tax regardless of their income.

 

Income Tax Deductions for Michigan

Tier 1 Michigan Standard Deduction

Taxpayers born prior to 1946 may be eligible for the Tier 1 Michigan Standard Deduction, which is applicable to retirement and pension benefits of up to $54,404 for single filers and up to $108,808 for taxpayers filing jointly.

Tier 2 Michigan Standard Deduction

Taxpayers born between 1946 and 1952 may be eligible for the Tier 2 Michigan Standard Deduction, which is worth $20,000 for single filers and up to $40,000 for taxpayers filing jointly.

Tier 3 Michigan Standard Deduction

Taxpayers born in 1953 and 1954 may be eligible for the Tier 3 Michigan Standard Deduction, which is worth $20,000 for single filers and up to $40,000 for taxpayers filing jointly.

Michigan 529 Contributions Deduction

Contributions to Michigan Education Savings Program (MSEP), MI 529 Advisor Plan (MAP), and Michigan Achieving a Better Life Experience Program (MiABLE) 529 accounts may be deducted. Deductions for these contributions are capped at $10,000 for single filers and $20,000 for joint filers. For the MESP and MAP accounts, the maximum deduction is $5,000 combined for a single taxpayer and $10,000 combined for couples filing jointly. The same cap applies to MiABLE accounts.

Michigan Education Trust Deduction

You can deduct contributions you made to a Michigan Education Trust (MET) 529 prepaid tuition contract, including charitable contributions to the MET’s Charitable Tuition Program.

Tax Calculator Michigan Married – 2023

Michigan State Income Tax Credits

Home Heating Tax Credit

Michigan residents who meet certain qualifications may request a credit to help cover heating expenses. Partial-year residents are eligible, but students who are being claimed as someone else’s dependent, residents of college or university-operated housing and those living in licensed care facilities are generally not eligible.

The standard credit has a maximum income ceiling of $39,157 and a maximum allowance of $1,371 (unless you qualify for certain exemptions). The alternate credit computation, which uses your heating costs to determine the amount of your credit, has an income ceiling of $27,700.

You must fill out the Home Heating Credit Claim MI-1040CR-7 form to determine your eligibility. The deadline for that submission is Sept. 30, 2022.

Michigan Earned Income Tax Credit (EITC)

If you claim an EITC on your federal tax return, you can claim one on your Michigan income tax return as well. The Michigan EITC is equal to 6% of your federal credit.

The federal EITC income cap ranges from $21,430 to $57,414 depending on how you file and how many children or relative dependents you claim. The maximum federal EITC amount you can claim on your 2021 tax return is $6,728.

For example, if you’re eligible for $3,000 federally, you can claim $180 through the Michigan EITC.

Do I Have to Pay Income Tax in Michigan?

You’re required to file a Michigan tax return if you have income from a Michigan source. This applies whether you are a full-time or part-time resident, or live elsewhere but earn income from a Michigan-based source.

Residency Status

You’re considered a resident if:

  • You reside in Michigan full time
  • You reside in Michigan for part of the year

Michigan residents who earn income in Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin need only pay Michigan income tax on that income.

 

Sales Tax and Sales Tax Rates

Michigan charges a sales tax of 6%. This is a statewide sales tax and Michigan doesn’t have separate rates by city or county.

 

Property Taxes and Property Tax Rates

Property taxes are determined locally.

Capital Gains Taxes

Michigan taxes capital gains at the same rate as other income, 4.25%.

Senior citizens born before 1946 can deduct interest, dividend and capital gains on their state income tax return. For 2021 taxes, the maximum deduction for single filers is $12,127, and the maximum deduction for joint filers is $24,254.

Inheritance and Estate Tax

Michigan doesn’t have an inheritance or estate tax.

Homestead Property Tax Credit

If you own property in Michigan and live in the state at least half the year, you may be eligible for the homestead property tax credit. The credit is available for taxpayers who have total household resources below $60,600.

Total household resources include income, capital gains, and other money you have received. See page 27 of the instructions for the Michigan 1040 form for a full list of what’s included in total household resources.

If the taxable value of your property exceeds $136,600, you’re not eligible to receive the credit.

Rent Credit

Michigan offers a tax credit for rent paid by residents. Twenty-three percent of the amount you paid for rent is considered property tax, and you can claim it on your state tax return. Your total household resources must be $60,600 or below to claim the credit.

An alternate credit is available for senior citizens age 65 and up who pay more than 40% of their total household resources in rent. The maximum credit for senior renters is $1,500.

Tax Calculator Michigan Married – 2023

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Michigan Small Business Taxpayer Exemptions

On January 16, 2023   /   Michigan Taxes  
Michigan Small Business Taxpayer Exemptions
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Michigan Small Business Tax Exemptions

Michigan Small Business Tax Exemptions

Is your Michigan business exempt from Taxes? Here is a list of all exemptions. Continue reading to see if you are exempt.

Questions? Contact ATS Advisors of Michigan

Common Michigan Small Business Taxpayer Exemptions:

501(c)(3) and 501(c)(4) Organizations

501(c)(3) and 501(c)(4) organizations must provide proof that they are exempt under these codes by the Internal Revenue Service. In addition to this they must provide a certificate of exemption stating that the property will be used or consumed in carrying out the operations of the organization. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Churches

Sales to organized churches or houses of religious worship are exempt from sales tax. These exempt sales must not involve property used in commercial enterprises. Vans or buses may be purchased exempt if the manufacturer’s rated seating capacity is 10 or more and it is used primarily for transportation of persons for religious purposes. Churches may not purchase any other type of vehicle exempt. Anyone who is directly engaged in the business of constructing, altering, repairing, or improving real estate for a church or a house of religious worship is liable for the sales tax on the inventory value of the materials affixed to the property, even if the church purchases the materials. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Government

Sales to the United States government, the State of Michigan and its political subdivisions, departments and institutions are not subject to tax, if the sales are ordered on the government form or purchase order and are paid for directly to the seller by warrant on government funds. Sales to the American Red Cross, and its chapters and branches are exempt. All sales to other states or countries are subject to Michigan sales tax. Sales to employees of the government for their own use are subject to tax. The exemption certificate is 3372 Michigan Sales and Use Tax Certificate of Exemption.

Hospitals

Sales to hospitals are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Industrial Processors

An industrial processing exemption is allowed for property which is used or consumed in transforming, altering, or modifying tangible personal property by changing the form, composition, or character of the property for ultimate sale at retail or for sale to another processor for further processing and ultimate sale at retail. The industrial processing exemption does not include property which is or becomes affixed to real estate, office supplies, administrative office equipment, or vehicles licensed for public highway use, except when the vehicle is used to mix and agitate materials added at the plant or job site in the concrete manufacturing process. Industrial processing also does not include the receipt or storage of raw materials extracted by the user or consumer or the preparation of food or beverages by a retailer for retail sale. The exemption certificate is 3372 Michigan Sales and Use Tax Certificate of Exemption .

Retailers

Retailers purchasing for resale should provide a signed exemption certificate by completing form 3372 Michigan Sales and Use Tax Certificate of Exemption and check box 1. For Resale at Retail in Section 3, Basis for Exemption Claim. Their sales tax license number must be included in the blank provided on the exemption claim. However, a seller should not accept the sales tax license number alone as a claim of exemption. The department does not issue tax-exempt numbers.

Schools

Sales to schools and parent cooperative preschools are exempt from sales tax when the organization is not operated for profit. The income or benefit from the operation must not inure to any individual or private shareholder, directly or indirectly. PTA, PTO, and all other groups and organizations must qualify separately for exemption when making purchases for their organizations. Sales to teachers are subject to tax. Revenue Administrative Bulletin 1995-3 and 2002-15 has more information on this topic.

Wholesalers

Wholesalers purchasing for resale should provide the seller with a completed form 3372 Michigan Sales and Use Tax Certificate of Exemption and check the box for Resale at Wholesale. Sales tax licenses are not issued to wholesalers.
-Michigan Small Business Taxpayer Exemptions-

Additional Exemptions and Deductions

Exemption Notices

Notice to Taxpayers Regarding Sales and Use Tax Exemptions for Feminine Hygiene Products

Sales and Use tax exemption for Transformational Brownfield Plans

Notice Regarding Data Center Exemption

Third-Party Lenders – Bad Debt Deductions

Effective October 1, 2009, a bad debt deduction may be claimed by a third-party lender or a retailer, provided that the retailer who reported the tax and the third-party lender financing the sale execute and maintain a written election designating which party is entitled to claim the deduction. There is no Treasury form to make this election.  However, the election must be written, must be signed by both parties, and must clearly and unequivocally state which party is entitled to the deduction; the mere assignment of the right to the debt alone does not satisfy the written election requirement.  The election must be executed before the bad debt is incurred.

The written election must be retained by the parties and made available to the Department upon request or audit.  In addition to the written election, the following conditions must also be met:

  • No deduction or refund was previously claimed or allowed on any portion of the account receivable.
  • The account receivable has been found worthless and written off by the seller that made the sale or by the lender on or after September 30, 2009.
  • The bad debt is eligible to be claimed, in accordance with the taxpayer’s accounting method, as a deduction under Section 166 of the Internal Revenue Code, 26 USC 166, or would be recognized as a bad debt if the claimant were a corporation.

A party making a refund claim must provide the written election to the Department with its refund request. A request for a refund based on bad debt incurred from the sale of motor vehicle must include a copy of the RD-108 for that vehicle.

For purposes of this deduction, “lender” includes any of the following:

  • A person that holds or held an account receivable that was purchased directly from the taxpayer that reported the tax.
  • Any person that holds or held an account receivable pursuant to that person’s contract directly with the taxpayer that reported the tax.
  • The issuer of a private label credit card that may only be used to make purchases from the vendor whose name or logo appears on the card or instrument.

The following amounts shall not be included as bad debt:

  • Interest or finance charges.
  • Sales or use tax charged or collected on the original sale.
  • Uncollectible amounts on property that remains in possession of the seller until the full purchase price is paid, e.g., property placed on layaway.
  • Expenses incurred in attempting to collect any account receivable or any portion of an account that is subsequently recovered.
  • Sales tax charged on property that is subsequently repossessed.
  • Any debt or account receivable that was sold, assigned, or transferred to, and remains in the possession of, a third party for collection.
  • A sale where the tax was remitted to the Department after the expiration of the applicable statute of limitations.

Source MCL 205.54i; MCL 205.99.

Interstate (Fleet) Motor Carriers Exemption

Michigan provides a sales and use tax exemption to interstate (fleet) motor carriers for rolling stock and parts affixed to rolling stock that are purchased, rented or leased by an interstate (fleet) motor carrier and used in interstate commerce. The exemption is for the purchase or use of qualified trucks and trailers (and parts affixed to them) that are purchased, leased, or rented after April 30, 1999. For additional information please refer to Internal Policy Directive 2003-1 and Internal Policy Directive 2010-1.

Interstate (fleet) motor carriers who qualify for exemption may claim exemption from sales or use tax by providing the seller or lessor with the prescribed Michigan Sales and Use Tax Certificate of Exemption, form 3372. The buyer or lessee would check the box “Rolling Stock purchased by an Interstate Motor Carrier”.

Use Tax Exemption on Vehicle Title Transfers

Michigan grants an exemption from use tax when the buyer and seller have a qualifying family relationship.

Read the brochure for details

– Michigan Small Business Taxpayer Exemptions –

Common Questions and Answers:

Can a customer instruct a seller not to charge sales or use tax because they will pay it directly to Michigan?

Yes, if the customer is authorized by Treasury and has a “direct pay permit” that covers the property purchased or leased.  The customer must provide to the seller a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption, or the required information in another acceptable format.  See Revenue Administrative Bulletin (RAB) 2016-14.  When stating its basis for claiming an exemption, the customer should state, “Authorized to pay sales or use taxes on purchases of tangible personal property directly to the State of Michigan” and must include its account number.

Does Michigan issue tax exempt numbers? If not, how do I claim an exemption from sales or use tax?

The Michigan Department of Treasury does not issue tax exempt numbers. In order to claim an exemption from sales or use tax, a purchaser must provide a valid claim of exemption to the vendor by completing one of the following:

  • Michigan Sales and Use Tax Certificate of Exemption (Form 3372)
  • Multistate Tax Commission’s Uniform Sales and Use Tax Certificate
  • Streamlined Sales and Use Tax Agreement Certificate or the same information in another format.

Note: A seller should not solely accept an FEIN as evidence of exemption from sales and use taxes.

How do I claim a valid exemption with my supplier?

To claim exemption, a purchaser must provide the supplier with one of the following:

  • Michigan Sales and Use Tax Certificate of Exemption (Form 3372)
  • Multistate Tax Commission’s Uniform Sales and Use Tax Certificate
  • Streamlined Sales and Use Tax Agreement Certificate or the same information in another format

Is manufacturing equipment tax exempt?

Michigan provides an exemption from sales or use tax on machinery or equipment used in industrial processing and in their repair and maintenance. The exemption does not include tangible personal property affixed to and becoming a structural part of real estate.

For further information on exemptions refer to Revenue Administrative Bulletin 2000-4.

Are purchases made for agricultural production tax exempt?

Michigan provides an exemption from sales or use tax on tangible personal property used in tilling, planting, caring for or harvesting things of the soil, in the breeding, raising or caring of livestock poultry or horticultural products for further growth. The exemption does not include tangible personal property affixed to and becoming a structural part of real estate.

For further information on exemptions refer to Qualified Agricultural Property Exemption Guidelines.

Is my purchase of a truck or trailer considered “rolling stock” and exempt from tax?

NOTE: Your first tractor/trailer lease/purchase IS NOT EXEMPT from Michigan sales or use tax.

In order to be exempt from Michigan sales or use tax certain criteria must be met. Exemption is allowed in Michigan on the sale of rolling stock purchased by an interstate motor carrier or for the rental or lease of rolling stock to an interstate motor carrier and used in interstate commerce.

According to MCL 205.54r,

  • Rolling stock means a qualified truck, a trailer designed to be drawn behind a qualified truck, and parts affixed to either a qualified truck or a trailer designed to be drawn behind a qualified truck.
  • Interstate motor carrier means a person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines, whose fleet mileage was driven at least 10% outside of this state in the immediately preceding tax year.
  • Qualified truck means a commercial motor vehicle power unit that has 2 axles and a gross vehicle weight rating in excess of 10,000 pounds or a commercial motor vehicle power unit that has 3 or more axles.

Motor carriers who qualify may claim exemption from sales or use tax by providing the seller or lessor with the prescribed Form 3372, Michigan Sales and Use Tax Certificate of Exemption. The buyer or lessee would check the box “Rolling Stock purchased by an Interstate Motor Carrier”.

Is a vehicle purchased by a church tax exempt?

ONLY vans or buses may be purchased exempt if the manufacturer’s rated seating capacity is 10 or more and it is used primarily for transportation of persons for religious purposes.

I am a 501(c)(3)/501(c)(4) Organization, how do I claim exemption from Michigan Sales and Use Tax?

Organizations exempted by statute, organizations granted exemption from federal income tax under Internal Revenue Code Section 501(c)(3) or 501(c)(4), or organizations that had received an exemption letter from the Michigan Department of Treasury prior to June 1994 are entitled to sales and use tax exemption in the State of Michigan.

Please refer to Revenue Administrative Bulletin (RAB) 1995-3 for more information on the exemption from Michigan sales and use tax as it relates to nonprofit entities.

In order to claim exemption, the nonprofit organization must provide the seller with both:

  • A completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption
  • Evidence of nonprofit eligibility:
    • Either the letter issued by the Department of Treasury (prior to June 1994),or
    • Your federal determination as a 501(c)(3) or 501(c)(4) organization.

How do I obtain a tax exempt number to claim an exemption from Sales or Use Tax?

The Michigan Department of Treasury does not issue “tax exempt numbers”.

Form 3372, Michigan Sales and Use Tax Certificate of Exemption, is used to claim exemption from Michigan Sales and Use Tax.  The buyer must present the seller with a completed form at the time of purchase.  For more information on exemption requirements and the procedures to claim an exemption see Revenue Administrative Bulletin 2002-15.

A customer is providing me with their tax exempt number as proof that they do not have to pay sales tax on their purchase; is this correct/valid?

The Department of Treasury does not issue or accept tax exempt numbers. Sellers should not accept a tax exempt number as evidence of exemption from sales and use tax.

To claim exemption for purchases, the buyer must present the seller with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption. The seller will retain the certificate in their records.

I am a retailer, how do I claim a resale exemption with my supplier?

To claim exemption, a retailer must provide the supplier with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption, indicating that the purchase is for “Resale at Retail”. Their sales tax license number must be included in the space provided.

NOTE:  A seller should not accept a FEIN as evidence of exemption from sales and use taxes without Form 3372.

Michigan Small Business Taxpayer Exemptions
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Tax Bracket 2022 Head of Household

On January 9, 2023   /   IRS  
Tax Bracket 2022 Head of Household
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Tax Bracket 2022 Head of Household – Need Michigan Tax Help? Contact ATS Advisors today!

2022 Tax Rates and Brackets

When you’re working on your 2022 federal income tax return next year, here are the tax brackets and rates you’ll need based on your filing status:

Single Filers and Married Couples Filing Jointly
Tax Rate Taxable Income
(Single)		 Taxable Income
(Married Filing Jointly)
10% Up to $10,275 Up to $20,550
12% $10,276 to $41,775 $20,551 to $83,550
22% $41,776 to $89,075 $83,551 to $178,150
24% $89,076 to $170,050 $178,151 to $340,100
32% $170,051 to $215,950 $340,101 to $431,900
35% $215,951 to $539,900 $431,901 to $647,850
37% Over $539,900 Over $647,850

 

Married Couples Filing Separately and Head-of-Household Filers
Tax Rate Taxable Income
(Married Filing Separately)		 Taxable Income
(Head of Household)
10% Up to $10,275 Up to $14,650
12% $10,276 to $41,775 $14,651 to $55,900
22% $41,776 to $89,075 $55,901 to $89,050
24% $89,076 to $170,050 $89,051 to $170,050
32% $170,051 to $215,950 $170,051 to $215,950
35% $215,951 to $323,925 $215,951 to $539,900
37% Over $332,925 Over $539,900

2023 Tax Rates and Brackets

If you’re already thinking about how to handle your 2023 finances in a tax-efficient way — even though it’s still only 2022 – here are the 2023 federal income tax brackets and rates for the four most common filing statuses:

Single Filers and Married Couples Filing Jointly
Tax Rate Taxable Income
(Single)		 Taxable Income
(Married Filing Jointly)
10% Up to $11,000 Up to $22,000
12% $11,001 to $44,725 $22,001 to $89,450
22% $44,726 to $95,375 $89,451 to $190,750
24% $95,376 to $182,100 $190,751 to $364,200
32% $182,101 to $231,250 $364,201 to $462,500
35% $231,251 to $578,125 $462,501 to $693,750
37% Over $578,125 Over $693,750

 

Married Couples Filing Separately and Head-of-Household Filers
Tax Rate Taxable Income
(Married Filing Separately)		 Taxable Income
(Head of Household)
10% Up to $11,000 Up to $15,700
12% $11,001 to $44,725 $15,701 to $59,850
22% $44,726 to $95,375 $59,851 to $95,350
24% $95,376 to $182,100 $95,351 to $182,100
32% $182,101 to $231,250 $182,101 to $231,250
35% $231,251 to $346,875 $231,251 to $578,100
37% Over $346,875 Over $578,100

Inflation’s Impact on the 2023 Brackets

Since inflation has been high over the past year or so, the inflation adjustments impacted the tax brackets more this year than what we’re used to seeing. This shows up when we look at the “width” of the 2023 brackets and see that they got comparatively wider than before. (By width, we mean the amount of income taxed at the applicable rate – so the difference between the bracket’s lowest dollar amount and its highest dollar amount.

Take, for example, the 22% bracket for single taxpayers. For the 2021 tax year, the bracket ranged from $40,526 to $86,375 and covered $45,849 of taxable income ($86,375 – $40,526 = $45,849). For 2022, the 22% bracket for singles goes from $41,776 to $89,075 and covers $47,299 of taxable income ($89,075 – $41,776 = $47,299). So, from 2021 to 2022, the 22% bracket for single filers got $1,450 wider ($47,299 – $45,849 = $1,450).

For 2023, however, the width of the 22% singles bracket grew by more than twice as much. The 2023 bracket covers $50,649 of taxable income ($95,375 – $44,726 = $50,649), which is $3,350 wider than for 2022.

But that’s OK – wider tax brackets are a good thing, because it helps prevent “bracket creep.” When a bracket gets wider, there’s less of a chance that you’ll end up in a higher tax bracket if your income stays the same or doesn’t grow at the rate of inflation from one year to the next.

How the Tax Brackets Work

Suppose you’re single and end up with $100,000 of taxable income in 2022. Since $100,000 is in the 24% bracket for singles, will your 2022 tax bill simply a flat 24% of $100,000 – or $24,000? No! Your tax is actually less than that amount. That’s because, using marginal tax rates, only a portion of your income is taxed at the 24% rate. The rest of it is taxed at the 10%, 12%, and 22% rates.

How Much Is Your Standard Deduction?

Here’s how it works. Again, assuming you’re single with $100,000 taxable income in 2022, the first $10,275 of your income is taxed at the 10% rate for $1,028 of tax. The next $31,500 of income (the amount from $10,276 to $41,775) is taxed at the 12% rate for an additional $3,780 of tax. After that, the next $47,300 of your income (from $41,776 to $89,075) is taxed at the 22% rate for $10,406 of tax. That leaves only $10,925 of your taxable income (the amount over $89,075) that is taxed at the 24% rate, which comes to an additional $2,622 of tax. When you add it all up, your total 2022 tax is only $17,836. (That’s $6,164 less than if a flat 24% rate was applied to the entire $100,000.)

Now, suppose you’re a millionaire. (We can all dream, right?) If you’re single, only your 2022 income over $539,900 is taxed at the top rate (37%). The rest is taxed at lower rates as described above. So, for example, the tax on $1 million for a single person in 2022 is $332,955. That’s a lot of money, but it’s still $37,045 less than if the 37% rate were applied as a flat rate on the entire $1 million (which would result in a $370,000 tax bill).

Capital Gains Tax Rates

It’s important to note that the tax rates on capital gains from the sale of stocks, bonds, cryptocurrency, real estate, and other capital assets aren’t necessarily the same as the tax rates mentioned above for wages, interest, retirement account withdrawals, and other “ordinary” income. When determining the tax on capital gains, the rates that apply generally depend on how long you held the capital asset before selling it.

Capital Gains Tax on Real Estate

If you hold a capital asset for one year or less, any gain from the sale is considered short-term capital gain and taxed using the rates for ordinary income listed above. However, if you hold the asset for more than one year, the gain is treated as long-term capital gain and taxed a lower rate – either 0%, 15%, or 20%. As with the ordinary tax rates and brackets, which specific long-term capital gains tax rate applies depends on your taxable income. However, the long-term capital gain brackets are set up so that you’ll generally pay tax at a lower rate than if the ordinary tax rates and brackets were applied.

For more on the taxation of capital gains, see Capital Gains Tax 101.

States Sending Stimulus Checks

“What Are the Income Tax Brackets for 2022 vs. 2023?” – Mengle, Rocky. 2023. Kiplinger.com.

Tax Bracket 2022 Head of Household

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