Michigan Retirement

If you live in Michigan you can take advantage of substantial tax benefits on retirement income. If you are over 65 you can deduct all federal and Michigan state pension income and up to $45,120 in private pension money from your state income tax return. If you file a joint return you can deduct up to $90,240 in pension funds from your Michigan tax return.

If you are over 65 you can also deduct up to $10,058 in capital gains, dividend and interest income from your state tax return. A married couple filing jointly can deduct up to $20,115 in such income from their tax return. Unfortunately you will have to subtract your pension income from this deduction. If your pension was $30,000 a year you would not be able to take advantage of this deduction.

Your best course of action would be to add up your income from both sources and see which is higher. Then claim the deduction that is larger.

You can also claim normal distributions from an IRA or retirement plan as pension income in Michigan if you are over 65. If you are under 65 you will not be able to claim this exemption.

Social Security is not considered taxable income in Michigan. Therefore you can deduct all of your Social Security payments from the adjusted income on your state tax return.

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Michigan Income Taxes

Michigan has a flat state income tax rate of 4.35%. This rate is the same for all kinds of income and for levels of income. That means you will have the same income tax rate no matter what your income is. The personal exemption in Michigan is $3,600 so you can deduct that amount from your taxes for every dependent listed on your return. If you are over 65 you can claim an additional exemption for $2,300.

Some cities in Michigan also charge an income tax. If your city charges income tax you can claim a city income tax credit that can cut your state bill by filling out the city income worksheet in your state tax book.

Michigan Sales Tax

The only sales tax in Michigan is the 6% state-wide sales tax, with no local sales tax of any sort. Most retail sales in Michigan will be covered by this tax. There appear to be no exemptions for food or prescription drugs. Utility services such as gas and electricity are taxed at a rate of 4%.

Michigan Property Taxes

Most local governments in Michigan assess property tax rates. You can estimate your property taxes using the Property Tax Estimator provided by the state's Department of Revenue. Something to be aware of is that under Michigan state law, property taxes can go up even as property value drops.

Fortunately there is a Homestead Property Tax Credit available in Michigan.To get the credit you must live in Michigan for six months of the year and own or rent a home. You must also have a household income of less than $82,650 a year. To get the credit you must file form MI-1040CR with your state tax return.

Capital: Lansing
Cost of Living Rank: #18
Sales Tax: 6.0%
Income Tax: 4.35%
State Website: http://www.michigan.gov