By: Cathy Lambert, CPA

The recent Corporate Income Tax law passed by the Michigan legislature includes several changes to individual pensions.  So what does it mean for you?  It depends.

There are three methods:

1. Persons born before 1946 (no change)
   • Social Security income remains untaxed
   • Public pensions are completely exempt
   • Private pensions exempt up to $45,120 for single and $90,240 for joint
   • No elimination of dividend, interest and capital gain exemption


2. Persons born between 1946 and 1952
   • Elimination of dividend, interest and capital gain exemption
   • Social Security income still exempt
   • Pension tax
     1. Before the taxpayer reaches 67
        • Portion of pension income exempt regardless if private or public
        • Up to $20,000 for single; $40,000 for joint
     2. Year taxpayer reaches 67
        • The $20,000/$40,000 exemption is good for all types of income
        • Exemption phased out at $75,000 for single and $150,000 for joint


3. Persons born after 1952
   • Before taxpayer reaches age 67
     1. No exemption on any type of pension income
     2. Social Security still exempt
   • After taxpayer reaches age 67
     1. Standard exemption replaced with $20,000/$40,000 exemption on all income
     2. Social Security is a part of the calculation
     3. Special exemption is eliminated if household resources exceed $75,000 for single filers or $150,000 for joint filers
     4. Forego special exemption and instead exempt 100% of Social Security and standard exemption

Admittedly, these are confusing parameters. Consult with your trusted advisor for complete details.

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