Tax on pensions still leaves Michigan retireefriendly

July 8, 2011
| By Pete Daly |
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Next January, Michigan will start taxing retiree pensions and withdrawals from private retirement accounts, with the exception of military and railroad pensions. Despite this increase in taxation, one local tax expert believes Michigan still remains among the kindest states when it comes to taxing retirement income.

According to Curtis Ruppal, state and local tax partner at Plante & Moran, Michigan is changing to what he calls an “age-based system,” in which the pensions and retirement accounts of anyone 67 or older at the end of this year is “grandfathered” and won’t be affected.

For people born between 1946 and 1952, Social Security payments remain fully exempt under state tax law, but the deduction is reduced by about half on private and public retirement income.

Ruppal said Gov. Rick Snyder’s tax reform was intended to be “more simple, fair and efficient.”

“In the grand scheme of things, I do believe that the goal was achieved,” said Ruppal.

Although the age factor now makes state income taxation more complex than in the past, he said, the end result of the legislature’s changes “still keeps Michigan in a top 10 state in terms of how favorably it treats that type of income.”

According to other published reports, the changes are expected to bring in an additional $330 million for the 2012 tax year, an average of $870 per return filed by retirees.

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