Archive for the Michigan Taxes Category

Understanding the Michigan Home Heating Tax Credit

The Michigan Home Heating Tax Credit helps low-income households manage their heating costs. This credit reduces financial strain during the cold months, ensuring that eligible residents can afford to heat their homes. Michigan administers this program annually, providing relief to those who qualify.

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Who Qualifies for the Credit?

The Tax Credit targets Michigan residents with low to moderate incomes. Eligibility depends on household size, total income, and heating costs. Renters and homeowners alike can apply, as long as they meet the income requirements. Individuals receiving public assistance may automatically qualify.

How to Apply for the Credit

Residents apply for the Home Heating Tax Credit by filing Form MI-1040CR-7. The state accepts applications from early in the year until September 30. It is important to submit forms before the deadline to receive benefits. Applicants must provide details about their income, household members, and heating expenses.

How the Credit is Calculated

The amount of credit varies depending on the applicant’s income and energy costs. Michigan uses a standard formula that considers household size and total earnings. The state may send payments directly to a resident or their energy provider. Those who receive energy assistance from another program may receive a reduced credit.

Benefits of the Credit

This tax credit helps eligible residents lower their heating bills, making home heating more affordable during winter. By easing financial pressure, the credit ensures that vulnerable households can maintain a warm living environment. Additionally, it reduces reliance on emergency heating assistance programs.

Important Considerations

Applicants should keep records of their heating bills and income statements. Submitting accurate information prevents delays in processing claims. Additionally, individuals who qualify for other Michigan tax credits may still apply for the Home Heating Credit. Residents should check with the Michigan Department of Treasury for updates on eligibility and filing procedures.

Conclusion

The Michigan Home Heating Tax Credit serves as a valuable resource for residents struggling with heating costs. By offering financial relief, the program ensures that vulnerable households stay warm during winter. Eligible residents should take advantage of this opportunity by applying before the annual deadline.

Michigan Corporate Income Tax – 5 Tips

Michigan’s Corporate Income Tax (CIT) is a flat 6.0% tax on C corporation profits. While this rate is lower than many other states, businesses can still take steps to reduce their tax burden. Maximizing savings requires strategic planning and knowledge of tax deductions and credits. Here are five tips to help businesses in Michigan minimize their corporate income tax liability.

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1. Take Advantage of Tax Credits

Michigan offers tax credits that can significantly reduce your corporate income tax liability. The Small Business Alternative Credit helps businesses with gross receipts under $20 million and adjusted business income under $1.3 million. Companies investing in redevelopment projects can claim the Brownfield Redevelopment Credit and Historic Preservation Credit. Research and development expenses may qualify for additional credits. Reviewing available incentives ensures you maximize savings.

2. Optimize Business Expenses and Deductions

Properly tracking and categorizing expenses lowers taxable income. Deduct eligible business expenses, including wages, rent, utilities, and professional services. Depreciation on business assets, such as equipment and vehicles, also reduces taxable income. Using accelerated depreciation methods like Section 179 allows businesses to deduct the cost of assets upfront rather than over time. Keeping accurate records ensures every deduction is accounted for.

3. Structure Business Operations Wisely

How a business is structured affects tax liability. While C corporations pay the 6.0% CIT, pass-through entities like S corporations, LLCs, and partnerships avoid double taxation. Some businesses elect to use Michigan’s Flow-Through Entity Tax (MI-FTE) to shift tax obligations from individual owners to the entity itself, allowing them to deduct state taxes federally. Consulting a tax professional ensures the best structure for long-term savings.

4. Carry Forward Net Operating Losses (NOLs)

Michigan allows businesses to carry forward net operating losses (NOLs) indefinitely. If a corporation has more deductions than income in a given year, it can apply those losses to future tax years. This reduces taxable income in profitable years, lowering overall tax liability. Keeping track of NOLs and applying them effectively provides long-term tax savings.

5. Stay Compliant and Avoid Penalties

Filing and paying taxes on time prevents unnecessary penalties and interest. Michigan requires annual CIT returns by April 30 for calendar-year filers. Businesses must make estimated quarterly payments if their tax liability exceeds $800 annually. Staying compliant with tax regulations ensures that businesses avoid costly fines and maintain good standing with the state.

Final Thoughts

Michigan’s Corporate Income Tax is straightforward but still offers ways to reduce liabilities. Using available tax credits, maximizing deductions, choosing the right business structure, utilizing NOLs, and maintaining compliance all contribute to tax savings. Businesses should work with a tax professional to ensure they take full advantage of every opportunity. Implementing these strategies helps companies keep more profits and reinvest in growth.

 

Michigan Corporate Income Tax – 5 Tips

Overview

The Michigan Small Business Alternative Credit helps small businesses reduce their Corporate Income Tax (CIT) liability. This credit provides financial relief to businesses that meet specific requirements. It ensures that small businesses in Michigan can grow and succeed.

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Eligibility Requirements

To qualify for the Small Business Alternative Credit, businesses must meet several conditions. These requirements focus on income, receipts, and compensation limits.

• Gross Receipts – The business must have $20 million or less in gross receipts.
• Adjusted Business Income – The business’s adjusted income must not exceed $1.3 million.
• Compensation Limit – No employee or owner can earn more than $205,000 in total compensation.

If a business exceeds any of these limits, it does not qualify for the credit.

How the Credit Works

Eligible businesses receive a lower tax rate under the Small Business Alternative Credit. Instead of paying the standard 6% Corporate Income Tax, qualified businesses pay a reduced rate of 1.8%. This significant reduction helps small businesses keep more of their earnings.

Claiming the Credit

To claim the Michigan Small Business Alternative Credit, businesses must follow these steps:

1. Complete the CIT return – Businesses file Form 4891, the Michigan Corporate Income Tax Annual Return.
2. Calculate eligibility – Owners must ensure they meet the income and compensation limits.
3. Submit documentation – Required forms must be filed accurately to claim the credit.

Filing correctly ensures businesses receive their tax benefits without delays or penalties.

Benefits of the Credit

This tax credit provides several advantages to small businesses. The main benefits include:

• Lower tax liability – The credit reduces the business’s overall tax rate.
• Encourages growth – More savings mean more opportunities to reinvest in the business.
• Simplifies tax planning – Knowing eligibility helps businesses plan their financial future.

These benefits help small businesses remain competitive in Michigan’s economy.

Common Mistakes to Avoid

Businesses should avoid these common errors when applying for the credit:

• Misreporting gross receipts – Ensure financial records are accurate.
• Exceeding compensation limits – Keep employee salaries within the required threshold.
• Missing filing deadlines – Late submissions may result in penalties or loss of credit eligibility.

Avoiding these mistakes ensures businesses receive the full benefit of the credit.

Conclusion

The Michigan Small Business Alternative Credit provides significant tax relief for qualifying businesses. By reducing tax rates, it allows small businesses to reinvest in growth. Understanding eligibility and filing requirements ensures businesses maximize this valuable tax benefit. Michigan’s small business community can use this credit to strengthen their financial future.

 

Tax season in Michigan can be stressful without proper preparation. Taking time now ensures a smoother filing process. Below are five essential items to help you Prepare for Michigan Tax Season.

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1. Gather Your Income Documents

Start by organizing all income-related paperwork. This includes W-2s from employers and 1099s for freelance or contract work. If you earned interest or dividends, ensure you have 1099-INT or 1099-DIV forms. Keeping these documents in one place avoids last-minute scrambling.

2. Collect Property Tax and Mortgage Statements

Michigan offers tax benefits for homeowners. Gather your mortgage interest statement (Form 1098) and property tax payment records. You may qualify for deductions or credits that reduce your tax liability.

3. Review Business Expense Records

Small business owners, including side hustlers, need accurate expense records. Organize receipts for supplies, marketing, and travel. Keep mileage logs if you use your vehicle for business. These deductions lower taxable income and reduce your tax burden.

4. Verify Contributions to Retirement Accounts

Maximize tax savings by reviewing retirement contributions. Ensure you’ve contributed the maximum allowed to IRAs or 401(k) plans. Traditional retirement contributions may be deductible on your state and federal returns.

5. Check for Michigan-Specific Tax Credits

Michigan offers tax credits for various expenses, including the Homestead Property Tax Credit and the Home Heating Credit. Review eligibility requirements to see if you qualify. These credits can provide significant tax relief.

Final Thoughts

Preparing early makes tax season manageable and less stressful. By gathering key documents and reviewing potential credits, you’ll file with confidence. Stay organized and proactive to ensure you claim every deduction and credit you deserve.

 

5 Items to Prepare for Michigan Tax Season – 2025

Michigan residents may encounter additional income taxes if they live or work in certain cities. Understanding City Income Taxes in Michigan is important to know how where you live might effect how much you pay. These taxes fund local government operations. Here’s a breakdown of how city income taxes work in Michigan, including rates and who must pay them.

Live in Michigan? Need tax help? Contact ATS 

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Overview of City Income Taxes

City income taxes in Michigan apply to individuals and businesses operating within specific city limits. Unlike the state’s flat income tax, these taxes vary by city. Only a few Michigan cities impose these taxes, including Detroit, Grand Rapids, Lansing, and Flint. The income tax applies differently to residents, non-residents, and businesses.

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Tax Rates for Residents and Non-Residents

Each city sets its own income tax rates. Residents typically pay a higher rate than non-residents. Here are some examples:

• Detroit: Residents pay 2.4%, while non-residents pay 1.2%.
• Grand Rapids: Residents pay 1.5%, and non-residents pay 0.75%.
• Lansing: Residents are taxed at 1%, and non-residents at 0.5%.
• Flint: Residents pay 1%, and non-residents pay 0.5%.

Rates for residents are based on all income earned, regardless of where it is earned. Non-residents are taxed only on income earned within the city limits.

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Who Must File City Income Taxes?

Any individual who lives in or earns income in a city with a local tax must file. This includes:

• Residents who work in or outside the city.
• Non-residents who work within the city limits.
• Businesses operating in the city.

Most cities offer a specific income tax form for residents and non-residents. Filing deadlines typically align with state and federal tax deadlines.

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Exemptions and Deductions

Michigan’s city income taxes include standard exemptions. For example, Detroit allows a personal exemption of $600 per taxpayer and each dependent. Some cities also permit deductions for retirement income or specific business expenses.

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How Are City Income Taxes Collected?

For employees, city taxes are often withheld directly from paychecks by employers. Employers operating in cities with income taxes must ensure proper withholding. Self-employed individuals or freelancers must calculate and pay their city taxes directly. Quarterly estimated payments may be required.

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Impact on Businesses

Businesses in cities with local income taxes must pay taxes on their income earned within the city. They may also be responsible for withholding employee city taxes. Failure to comply can result in penalties and interest.

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Why Do Cities Impose Income Taxes?

City income taxes provide essential revenue for local services. These funds support public safety, infrastructure, parks, and community programs. Cities like Detroit rely heavily on income tax revenue to maintain city operations.

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How to Stay Compliant

Taxpayers should review their local city tax requirements each year. Check city websites or contact local tax offices for updates. Filing correctly and on time avoids penalties.

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City income taxes in Michigan ensure cities can provide vital services. Understanding the rules helps residents and businesses meet their tax obligations efficiently.

Michigan Vehicle Trade In Tax Credit: Unique “Sales Tax on the Difference” Policy: Saving Money When Trading Vehicles

Michigan stands out among states with its unique “Sales Tax on the Difference” policy. This law offers significant savings for residents trading in their vehicles.

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What Is the “Sales Tax on the Difference” Policy?

The “Sales Tax on the Difference” policy allows vehicle buyers to pay sales tax only on the difference between the trade-in value and the new vehicle price. This reduces the taxable amount, leading to considerable savings for Michigan drivers.

For example, if you trade in a car worth $10,000 toward a new vehicle priced at $30,000, you only pay sales tax on $20,000. Without this policy, sales tax would apply to the full $30,000.

Why Does This Policy Exist?

This policy aims to ease the financial burden on Michigan residents purchasing vehicles. By recognizing the value of trade-ins, the state helps consumers keep more money in their pockets. It’s especially beneficial for those upgrading to newer models or purchasing more expensive vehicles.

Who Benefits from the Policy?

Anyone trading in a vehicle when buying a new or used vehicle benefits from this tax break. Michigan car dealerships automatically apply the tax savings at the time of purchase, making the process seamless for buyers.

Private sales do not qualify. The policy only applies to transactions involving licensed dealerships.

How Much Can You Save?

Savings depend on the trade-in value and the vehicle’s sales tax rate. Michigan’s current sales tax rate is 6%. For a trade-in valued at $15,000, the policy saves you $900 in taxes.

The higher your trade-in value, the more you save. This makes trading in a vehicle an attractive option for cost-conscious buyers.

How to Take Advantage of the Policy

Taking advantage of this policy is straightforward:

1. Work with a licensed Michigan dealership.
2. Ensure the trade-in value is documented in the purchase agreement.
3. Confirm the tax calculation reflects the trade-in deduction.

The dealership handles the tax paperwork, so buyers only need to ensure accuracy in the contract.

Common Misunderstandings

Some buyers assume the policy applies to private vehicle sales, but it does not. Others believe all vehicle purchases qualify automatically, which is only true when a trade-in is involved.

Buyers also occasionally forget to verify the trade-in value on their contract, potentially missing out on the full tax benefit.

Potential Policy Changes

There has been periodic discussion about modifying or eliminating the policy. Critics argue it reduces state tax revenue, while supporters highlight its consumer-friendly benefits. For now, the policy remains a unique advantage for Michigan vehicle buyers.

Final Thoughts

Michigan’s “Sales Tax on the Difference” policy is a hidden gem for vehicle buyers. By lowering the taxable amount through trade-ins, this law helps residents save money on their vehicle purchases. If you’re considering trading in your car, make sure to take full advantage of this valuable tax break!

Michigan Vehicle Trade In Tax Credit

For more information, visit michigan.gov

Michigan Property Tax and the Principal Residence Exemption (PRE)

Michigan’s Principal Residence Exemption (PRE) attracts attention because it reduces property taxes for primary homeowners. This exemption excludes a portion of a home’s taxable value from school operating taxes, typically 18 mills. Homeowners who qualify save $1,800 for every $100,000 in taxable value.

Live in Michigan and need tax assistance? Contact ATS Advisors today.

How the Michigan Principle Residence Exemption (PRE) Works

The PRE applies only to homes used as a primary residence. Secondary properties like vacation homes and rentals do not qualify. Homeowners must file a Principal Residence Exemption Affidavit (Form 2368) with their local assessor. Filing must occur by June 1 to claim the exemption for the current year.

The exemption stays active unless the homeowner moves or changes the property’s use. Not notifying the assessor of changes leads to penalties.

Why the PRE Stands Out

The PRE garners attention because it offers significant financial benefits and comes with unique rules. Many homeowners focus on this exemption to reduce tax costs and avoid issues.

1. It Saves Money: The PRE reduces the tax bill noticeably for homeowners, making it a key concern for many.
2. Misunderstandings Create Problems: Some people misuse or misunderstand the exemption and face fines or audits as a result.
3. Taxable Value Disputes: Homeowners sometimes dispute the property’s taxable value or its qualification as a principal residence.
4. Transfers Confuse Many: Buyers must reapply for the exemption when purchasing a home, which confuses some homeowners.

Common Challenges

Some people wrongly assume the PRE applies to all property taxes. Others fail to remove the exemption when renting their property. These errors often surface during audits or tax filings. Homeowners sometimes learn of penalties when reporting rental income that contradicts their PRE claim.

Maximizing the PRE Benefits

To benefit from the PRE, homeowners must follow the rules carefully. Filing the correct forms on time prevents future issues. They also need to update local assessors about any changes in residency or property use. Staying compliant avoids fines and protects long-term savings.

The PRE continues to be a topic of discussion because it impacts so many Michigan residents. By understanding the process and maintaining accuracy, homeowners can maximize their savings while avoiding costly mistakes.

Michigan families receive significant tax relief with the recent increase in the Earned Income Tax Credit (EITC). Starting in 2024, the Michigan EITC rises from 6% to 30% of the federal credit. This increase puts more money back into the hands of working families, helping reduce financial strain. Do y0u live in Michigan? Want the most out of your tax return this season? Contact ATS Advisors Today

What is EITC?

The EITC is a refundable credit that supports low- and moderate-income working individuals and families. It reduces the taxes owed or increases refunds for those who qualify. Families with children tend to benefit most, though some childless workers also qualify.

This 30% boost provides substantial financial relief for eligible Michigan residents. For example, if your federal EITC is $3,000, you can now receive $900 from Michigan instead of $180. This increase can make a meaningful difference for families, covering essential expenses such as housing, utilities, or groceries.

Eligibility:

Eligibility for the EITC depends on income, family size, and filing status. In 2024, families earning under $59,187 may qualify, depending on their circumstances. Single individuals and married couples without children may also receive benefits if they meet lower income thresholds.

The credit especially helps families in urban and rural areas where income disparities remain significant. It supports local economies by enabling recipients to spend more on necessities within their communities. This creates a ripple effect, strengthening Michigan’s economic stability.

Claiming the Michigan EITC is straightforward. Taxpayers simply file their state and federal returns and claim the federal EITC. The Michigan Treasury Department calculates the 30% state match automatically. To ensure accuracy, you should check eligibility requirements and provide all necessary documentation when filing.

Governor Gretchen Whitmer and lawmakers championed this increase, emphasizing its potential to reduce child poverty statewide. By significantly expanding the credit, Michigan aims to narrow the gap between low-income families and financial security. Experts predict this increase will benefit nearly 750,000 Michigan households in 2024.

The EITC encourages employment by rewarding work, making it a powerful tool for both economic and social improvement. Families see direct benefits while employers may experience increased productivity from less financially stressed workers.

Financial advisors recommend that eligible taxpayers plan how to use their increased refunds effectively. Consider paying down debt, saving for emergencies, or investing in education. These strategies can help maximize the long-term benefits of the EITC increase.

Community organizations and tax preparation centers often provide free help to ensure eligible individuals claim the EITC. Resources like Volunteer Income Tax Assistance (VITA) programs guide taxpayers through the process at no cost.

Conclusion:

The EITC increase highlights Michigan’s commitment to improving economic outcomes for working families. With greater financial flexibility, more Michigan residents can focus on building a secure future. This policy shift represents a win for families, communities, and the state’s economy.

For more information, visit Michigan’s Department of Treasury website or consult a qualified tax professional. Make sure you claim your EITC benefits this tax season.

 

Michigan 30% EITC Increase – 2024

Michigan has a number of tax rules that are specific to the state. Here are 8 Michigan Specific Tax Rules:

1. Michigan Individual Income Tax

• Flat Income Tax Rate: Michigan imposes a flat income tax rate of 4.05% (as of 2023), which is applied to all residents regardless of income level.
• City Income Taxes: Some cities in Michigan, including Detroit, Grand Rapids, and Lansing, impose additional local income taxes. For example, Detroit’s tax rates are 2.4% for residents and 1.2% for non-residents who work in the city.
• Michigan Homestead Property Tax Credit: Residents with low to moderate incomes may qualify for a credit on their state income taxes to offset property taxes paid on their principal residence. This credit is subject to income and property value limits.

2. Michigan Sales and Use Tax

• Sales Tax Rate: Michigan has a 6% sales tax on most retail goods and services. Michigan does not have a local sales tax, so the 6% rate is uniform across the state.
• Exemptions: There are specific exemptions, including groceries, prescription drugs, and certain medical equipment.
• Use Tax: If a resident purchases goods from out of state and does not pay sales tax, they are required to report and pay Michigan’s 6% use tax.

3. Michigan Corporate Income Tax

• Michigan imposes a 6.0% Corporate Income Tax (CIT) on corporations with gross receipts over $350,000. S-corporations and partnerships generally do not pay the CIT but are subject to personal income taxes on their profits.

4. Michigan Small Business Tax

• Flow-Through Entity Tax: Michigan allows pass-through entities (like LLCs, partnerships, and S-corporations) to elect to pay an entity-level tax on behalf of its owners, which is at a rate of 4.05%. This helps business owners deduct Michigan taxes at the federal level under certain conditions.

5. Michigan Property Tax

• Principal Residence Exemption (PRE): Homeowners who occupy their home as their principal residence can exempt it from a portion of local school operating taxes, reducing property tax liability.
• Uncapping Property Taxes: Michigan has a “taxable value” system that limits increases in property tax assessments until the property is sold. After a sale, the property’s taxable value may “uncap” and increase to the current market value.

6. Michigan Retirement Tax Rules

• Tax on Pensions and Retirement Income: Depending on the taxpayer’s birth year, Michigan may or may not tax retirement income. People born before 1946 generally are exempt from Michigan tax on Social Security, private pensions, and public pensions. People born after 1952 may have limited or no exemptions.

7. Michigan Motor Vehicle Registration Tax

• Michigan levies an annual registration tax on motor vehicles, which is based on the vehicle’s list price and age rather than weight or horsepower.

8. Michigan Business Personal Property Tax

• Small Business Exemption: Small businesses with personal property (machinery, equipment, etc.) that have a combined value of less than $180,000 are eligible for an exemption from Michigan’s personal property tax.

9. Industrial Processing Exemption

• Businesses involved in manufacturing or industrial processing can claim an exemption on the sales and use tax for equipment and machinery used in the production process.

Have a small business? Need a new accountant? Contact ATS Advisors for more details.

Michigan Pension Tax Phase Out: The Lowering MI Costs Plan

Intro

The state of Michigan is currently implementing a significant change in its tax policies through the “Lowering MI Costs Plan.” Signed into law as Public Act 4 of 2023, this new legislation gradually phases out the pension tax. This move is designed to reduce financial strain on retirees while promoting fairness in taxation across the state.

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Phase in of Pension Tax Deduction under the Lowering MI Cost Plan

Birth Year	2023	2024	2025	2026 and thereafter
1945 and before (no changes)	Full amount	Full amount	Full amount	Full amount
1946-1958	25% of the 2023 amount (25% = $14,240.25 for single filers or $28,480.50 for joint filers)	50% of the 2024 amount	75% of the 2025 amount	Full 2026 amount
1959 -1962	No exemption	50% of the 2024 amount	75% of the 2025 amount	Full 2026 amount
1963- 1966	No exemption	No exemption	75% of the 2025 amount	Full 2026 amount
1967 and after	No exemption	No exemption	No exemption	Full 2026 amount

 

Prior to the Lowering MI Costs Plan, Michigan taxed retirement income. Since 2011, residents aged 67 and below have seen pensions and retirement benefits taxed under a system enacted by former Governor Rick Snyder. For many retirees, this policy created financial pressure. The new plan seeks to provide relief by gradually reducing taxes on pensions and other retirement income.

Starting in 2023, Michigan retirees are already benefiting from this law. It increases exemptions and reduces the overall taxable amount of pension income for certain individuals. The plan will roll out over several years, with the full phase-out expected by 2026. As each year passes, retirees will see a progressively larger portion of their retirement income exempt from state taxes.

For example, under the new law, retirees born between 1946 and 1952 will receive immediate tax relief. They will benefit from the higher pension income exemptions that this law offers. Residents born after 1952 will also benefit in the coming years. The gradual nature of the phase-out ensures a smooth transition without immediate fiscal shocks to the state budget.

The pension tax phase-out is part of a broader effort by Michigan lawmakers to make the state more financially friendly for retirees. Reducing taxes on pensions encourages retirees to stay in Michigan rather than move to states with no pension taxes. This, in turn, helps retain a vital portion of the state’s population while reducing their tax burden.

The financial impact of this law is substantial. According to state estimates, Michigan retirees will save an average of $1,000 per year once the pension tax is fully phased out. This savings can make a significant difference, particularly for retirees living on fixed incomes.

Governor Gretchen Whitmer and other proponents of the law emphasize its importance in improving the quality of life for Michigan retirees. The Governor describes the law as a step toward restoring fairness in the tax system, particularly for older residents. Many seniors are welcoming the law, seeing it as a positive step toward financial relief and stability.

However, critics express concern about the fiscal impact on the state’s budget. The Michigan Department of Treasury expects the full phase-out of the pension tax to reduce state revenue by around $500 million annually by 2026. Proponents argue that this reduction in revenue will be offset by the retention of retirees in the state, who contribute to the local economy in other ways.

Conclusion

In summary, the Lowering MI Costs Plan, enacted through Public Act 4 of 2023, represents a positive shift for Michigan retirees. By phasing out the pension tax over several years, the state aims to alleviate financial burdens on its aging population while encouraging them to stay in Michigan. This tax policy change is a crucial part of the broader effort to lower costs and improve the quality of life for residents in Michigan.