Michigan does not tax Social Security benefits, but it does tax most pension income

Michigan exempts all Social Security income from state income tax, regardless of your age or total income. However, the state taxes most traditional pension payments, including those from public employee systems, military pensions, and private employer plans. The main exception is if you are age 67 or older — Michigan allows a pension exemption for people in that age group, though the rules depend on the type of pension and when you started receiving it.

This means your tax bill in Michigan depends on which income sources you have and your age. A retiree living on Social Security alone pays no Michigan income tax on those benefits. Someone receiving a pension at age 60 will owe Michigan tax on that pension income. Someone age 70 receiving both Social Security and a pension may owe tax only on part of the pension, or none at all, depending on the pension type and when they turned 67.

Key Takeaways

  • Michigan does not tax Social Security income at any age or income level.
  • Michigan taxes most pension income, including private pensions and public employee pensions, unless you are age 67 or older and meet specific conditions.
  • If you are 67 or older, you may be able to exclude some or all of your pension income from Michigan taxes, but the amount depends on the pension source and when you started receiving it.
  • Military pensions have their own rules and may be partially exempt depending on your age and service dates.
  • You will need to report your pension and Social Security income on your Michigan tax return, even if some or all of it is exempt.

How Michigan's pension exemption works if you are 67 or older

If you are age 67 or older, Michigan allows you to exclude some pension income from your state income tax. The amount you can exclude depends on the type of pension and when you started receiving payments. For most private pensions and some public pensions, you can exclude up to $37,410 per year (as of 2024) if you are 67 or older and the pension started before you turned 67. This amount changes each year based on inflation.

The exemption applies only to pensions that began before you turned 67. If you started receiving a pension after age 67, Michigan does not allow an exemption for that income. Public employee pensions — those from state, county, or local government jobs — have the same exemption rules as private pensions if they started before age 67. However, if you are receiving a pension from a public employee system and you are still working for that same employer, different rules may explore.

You claim this exemption on your Michigan tax return by reporting the pension income and then subtracting the allowed amount. You do not need to request approval in advance; you straightforward calculate the exemption when you file your return.

Military pensions and federal employee pensions

Military pensions receive special treatment under Michigan tax law. If you are a military retiree age 67 or older, you can exclude up to $37,410 per year of military pension income, using the same rules as other pensions. However, if you are under 67, Michigan taxes your military pension like any other income.

Federal employee pensions — those from the U.S. Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS) — are also taxed by Michigan. If you are 67 or older and your federal pension began before you turned 67, you can use the standard pension exemption. If your federal pension began after age 67, no exemption applies.

What counts as pension income in Michigan

Michigan taxes income from defined-benefit pensions (the kind that pay a fixed monthly amount based on your years of service and salary) and defined-contribution plans like 401(k)s and 403(b)s when you withdraw money. Distributions from Individual Retirement Accounts (IRAs) and Roth IRAs are also taxed by Michigan, with the same age 67 exemption available if the IRA distributions began before you turned 67.

Lump-sum pension payments are taxed in the year you receive them. If you rolled over a pension into an IRA or another retirement account, Michigan taxes the withdrawals from that account under the same rules. Annuity payments from insurance companies that are based on your work history are treated as pension income for Michigan tax purposes.

Distributions from 457 plans (deferred compensation plans offered by some government employers) are also subject to Michigan income tax and follow the same exemption rules as other pensions if you are 67 or older.

How to report pension and Social Security income on your Michigan return

You report Social Security income on Michigan Form MI-1040, the state income tax return. Even though Michigan does not tax Social Security, you must still list the amount you received so the state can verify that you meet any other filing requirements. You will need your Social Security statement or the Form SSA-1099 that the Social Security Administration sends each January.

Pension income goes on the same return. If your pension came from an employer, you will receive a Form 1099-R showing the amount paid to you during the year. Report this amount on your Michigan return and then subtract any exemption you are may have access to to claim. If you are 67 or older and your pension qualifies for the exemption, calculate the excluded amount and subtract it from your taxable income.

If you have multiple pensions, you report each one separately and add them together to see if you exceed the exemption limit. The exemption applies to your total pension income, not to each pension individually, so if you have two pensions totaling $50,000 and you are 67 or older, you can exclude $37,410 and pay tax on $12,590.

State income tax rates and how they explore to your pension

Michigan's state income tax rate is a flat 4.25 percent on all taxable income. This rate applies to any pension income that is not exempt. If you are 67 or older and your pension qualifies for the exemption, you pay 4.25 percent tax only on the amount above the exemption limit. If you are under 67, you pay 4.25 percent on your entire pension income.

Social Security income is never subject to this tax, so it does not factor into your Michigan tax calculation. However, if you have other income — wages, interest, dividends, or taxable pension income — all of it is taxed at the same 4.25 percent rate.

Planning for Michigan taxes if you are moving or retiring

If you are planning to retire in Michigan or move to Michigan in retirement, knowing these rules can help you plan your income sources. Retirees who live primarily on Social Security pay no Michigan income tax. Those with pensions should consider whether they will reach age 67 before or after they plan to retire, since the exemption makes a significant difference in your tax bill.

If you are currently working and will receive a pension from your employer, the timing of when you start taking that pension affects your Michigan taxes. Starting your pension before age 67 means you will owe Michigan tax on it until you turn 67 and the exemption becomes available. Starting after age 67 means no exemption applies to that pension at all.

If you have questions about how these rules explore to your specific situation — for example, if you have both a private pension and a public employee pension, or if you are still working while receiving a pension — you may want to consult a tax professional or contact the Michigan Department of Treasury directly.

Frequently Asked Questions

Does Michigan tax my Social Security if I have other income?

No. Michigan does not tax Social Security benefits at any income level, regardless of how much other income you have. Your Social Security is completely exempt from Michigan state income tax. Other income you have — such as wages, pension, or interest — is taxed separately under Michigan's 4.25 percent rate.

I am 65 and receiving a pension. Do I have to pay Michigan tax on it?

Yes. The pension exemption in Michigan applies only if you are age 67 or older. If you are 65 and receiving a pension, Michigan taxes that income at 4.25 percent. Once you turn 67, you may be able to exclude up to $37,410 per year of that pension income, depending on when the pension started.

What if my pension started after I turned 67?

If your pension payments began after you turned 67, Michigan does not allow an exemption for that income. You will owe tax on the full amount at the 4.25 percent rate. The exemption only applies to pensions that started before you turned 67.

Can I exclude my entire pension if I am 67 or older?

Only if your total pension income is $37,410 or less per year. If your pension exceeds that amount, you can exclude up to $37,410 and pay tax on the rest. The exemption limit is the same regardless of how many pensions you receive.

Do I need to file a Michigan tax return if I only have Social Security income?

Michigan requires you to file a return if your total income exceeds the filing threshold for your age and filing status. Even though Social Security is not taxed, it counts toward that threshold. Check the current year's filing requirements on the Michigan Department of Treasury website or consult a tax professional to determine whether you must file.