Michigan does not tax Social Security benefits

Michigan is one of the states that does not impose income tax on Social Security retirement, survivor, or disability benefits. If Social Security is your only income source, you will not owe Michigan state income tax on those payments. This applies whether you receive benefits as a retiree, a surviving spouse or child, or someone with a disability.

However, the federal government may still tax your Social Security benefits depending on your total income. Michigan's exemption covers only state tax, not federal tax. Understanding the difference between state and federal taxation is important because you could owe federal tax even though Michigan does not tax your benefits.

Key Takeaways

  • Michigan does not tax Social Security income at the state level, regardless of how much you receive or your age.
  • The federal government may still tax your Social Security benefits if your combined income exceeds certain thresholds, even though Michigan does not.
  • Combined income includes your Social Security benefits, wages, interest, dividends, and other taxable income added together.
  • You can request that the Social Security Administration withhold federal taxes from your monthly benefit payment to avoid a large tax bill later.

How federal taxation of Social Security works

The federal government uses a formula based on your combined income to determine whether your Social Security benefits are taxable. Combined income is the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits. The IRS publishes the exact thresholds each year, and they differ depending on whether you file as single or married filing jointly.

For 2024, if you file as single and your combined income exceeds $25,000, some of your Social Security benefits may be subject to federal tax. If you file as married filing jointly, the threshold is $32,000. These amounts have not changed since 1984, even though the cost of living has risen significantly. This means more people are affected by federal taxation of Social Security than in the past.

If your combined income falls below these thresholds, your Social Security benefits are not taxable at the federal level. If it exceeds the threshold, you may owe tax on up to 85 percent of your benefits, depending on how far above the threshold you are.

What counts toward your combined income

Combined income includes more than just your Social Security check. It includes wages from employment, self-employment income, pensions, interest from savings accounts and bonds, dividends from stocks, rental income, and income from retirement accounts like IRAs or 401(k)s. It also includes nontaxable interest from municipal bonds, which many people do not realize counts toward the threshold.

If you are still working while receiving Social Security, your wages count toward combined income. If you have a pension from a government job that did not withhold Social Security tax, that pension counts too. The key is that nearly all income sources add up—even small amounts of interest or dividends can push you over the threshold.

Requesting federal tax withholding from your benefits

If you know you will owe federal tax on your Social Security benefits, you can ask the Social Security Administration to withhold taxes directly from your monthly payment. This prevents you from facing a large bill when you file your federal return. You can request withholding using Form W-4V, which you submit to your local Social Security office or mail to the address on the form.

You can choose to have 7, 10, 12, or 22 percent of your benefit withheld, or you can request a specific dollar amount. If you change your mind or your income changes, you can adjust your withholding at any time by submitting a new Form W-4V. The Social Security Administration will send you a confirmation letter showing your new withholding amount.

Filing your federal tax return with Social Security income

Even if Michigan does not tax your Social Security, you may still need to file a federal tax return. The IRS requires you to file if your combined income exceeds the thresholds mentioned above. You will report your Social Security benefits on Form 1040 or Form 1040-SR (for people 65 and older), and you may need to complete a worksheet to calculate how much of your benefits are taxable.

If you did not have taxes withheld from your Social Security benefits during the year, you may owe tax when you file. If you had taxes withheld, those withholdings will be credited against your total federal tax liability. If you withheld more than you owe, you will receive a refund.

Other Michigan tax considerations for retirees

While Michigan does not tax Social Security, it does tax other types of retirement income. Michigan taxes income from IRAs, 401(k)s, pensions, and annuities at the state level. If you receive a pension or have retirement account withdrawals, Michigan will tax that income. However, Michigan offers a pension exemption for certain types of retirement income, depending on your age and the source of the pension.

Michigan also does not tax military retirement pay, which is a separate exemption from the Social Security exemption. If you are a military retiree receiving both military pay and Social Security, neither is taxed by Michigan, though both may be taxed by the federal government.

Frequently Asked Questions

Will I owe Michigan state tax if Social Security is my only income?

No. Michigan does not tax Social Security benefits regardless of the amount you receive. If Social Security is your only income source, you will not owe Michigan state income tax. You may still owe federal tax depending on your combined income, but Michigan has no state tax on these benefits.

What is the difference between Michigan tax and federal tax on Social Security?

Michigan does not tax Social Security at all. The federal government may tax your benefits if your combined income exceeds certain thresholds. You can owe federal tax while owing zero Michigan tax, or you can owe neither. The two systems are separate.

Do I need to file a Michigan state tax return if I receive Social Security?

Not because of Social Security alone. However, if you have other income—such as wages, interest, dividends, or a pension—you may need to file a Michigan return depending on the amount. Check the Michigan Department of Treasury website for current filing requirements based on your total income.

Can I change how much federal tax is withheld from my Social Security?

Yes. Submit Form W-4V to the Social Security Administration to request withholding of 7, 10, 12, or 22 percent of your benefit, or a specific dollar amount. You can change your withholding at any time by submitting a new form. Contact your local Social Security office for the mailing address.

Does Michigan tax military retirement pay?

No. Michigan exempts military retirement pay from state income tax. If you receive both military retirement and Social Security, neither is taxed by Michigan. Federal tax may still explore to both, depending on your combined income.