Michigan does not tax Social Security benefits

Michigan is one of the states that does not impose state income tax on Social Security retirement, survivor, or disability benefits. If you receive Social Security in Michigan, you will not owe Michigan state income tax on those payments, regardless of your total income or filing status.

The federal government may still tax your Social Security benefits depending on your combined income, but Michigan itself takes no state tax from these payments. This is a significant advantage for retirees and disabled beneficiaries living in the state.

Key Takeaways

  • Michigan does not tax Social Security benefits at the state level, so you owe no Michigan income tax on these payments.
  • The federal government may still tax your Social Security depending on your combined income from all sources.
  • Combined income is calculated by adding your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
  • If you are married filing jointly and your combined income exceeds $32,000, the IRS may tax up to 85 percent of your benefits.
  • You can request that the Social Security Administration withhold federal taxes from your benefits to avoid owing a large amount at tax time.

How the federal government determines if your benefits are taxed

The IRS uses a calculation called combined income to decide whether your Social Security is subject to federal tax. Combined income is not the same as your total income. It equals your adjusted gross income plus any nontaxable interest you earned, plus half of your Social Security benefits for the year.

For example, if you received $20,000 in Social Security and earned $15,000 from a part-time job, your combined income would be $15,000 plus $10,000 (half of $20,000), which equals $25,000. The IRS then compares this figure to the thresholds set for your filing status.

Federal tax thresholds for Social Security

The amount of your Social Security that may be taxed depends on your filing status and combined income. These thresholds have not changed since 1984, even though the cost of living has risen significantly.

If you file as single and your combined income is between $25,000 and $34,000, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $34,000, you may owe federal tax on up to 85 percent of your benefits.

If you file as married filing jointly and your combined income is between $32,000 and $44,000, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $44,000, you may owe federal tax on up to 85 percent of your benefits.

If you file as married filing separately, you will almost certainly owe federal tax on your benefits, even with a very low combined income. The IRS treats this filing status differently and applies a threshold of $0.

Other Michigan tax considerations for retirees

While Michigan does not tax Social Security, the state does tax other forms of retirement income. If you receive a pension from a government employer, Michigan taxes that income. If you withdraw money from a traditional IRA or 401(k), Michigan taxes those withdrawals as well.

Michigan does offer a homestead property tax credit for residents with household income below a certain level. This credit reduces the property tax you owe on your primary home. Retirees with low to moderate income may be able to claim this credit even if they do not owe Michigan income tax on Social Security.

How to handle federal withholding on your benefits

If you expect to owe federal tax on your Social Security, you can ask the Social Security Administration to withhold taxes directly from your monthly benefit payment. This prevents you from owing a large lump sum when you file your federal return.

To request withholding, complete Form W-4V and send it to your local Social Security office or mail it to the address on the Social Security website. You can choose to have 7, 10, 12, or 22 percent of your benefits withheld, or you can specify a dollar amount. You can change your withholding at any time by submitting a new form.

If you do not request withholding and you owe federal tax on your benefits, you will need to pay the tax when you file your return. Some people make quarterly estimated tax payments instead, using Form 1040-ES.

What to do if you receive both Social Security and a pension

If you receive both a government pension and Social Security, the Government Pension Offset may reduce your spousal or survivor benefits. This rule applies to people who receive a pension from work not covered by Social Security, such as some government jobs.

The offset reduces your spousal or survivor benefit by two-thirds of the government pension amount. For example, if your government pension is $900 per month, your spousal benefit would be reduced by $600. In many cases, this eliminates the spousal benefit entirely.

This is a federal rule, not a Michigan rule, but it affects many Michigan residents who worked for state or local government. If you think the offset applies to you, contact the Social Security Administration before you claim benefits to understand how it will affect your household income.

Frequently Asked Questions

Do I have to file a federal tax return if I only receive Social Security?

Not necessarily. If Social Security is your only income and it is below the filing threshold for your age and filing status, you do not have to file. However, if you have other income or if federal tax was withheld from your benefits, filing may result in a refund.

Will my Medicare premiums go up if my Social Security is taxed?

Your Medicare Part B and Part D premiums are based on your modified adjusted gross income from two years prior, not on whether your Social Security is taxed. If your income is high enough to trigger Social Security taxation, your Medicare premiums may increase as well.

Can I reduce my combined income to avoid federal tax on Social Security?

You can reduce your adjusted gross income by contributing to a traditional IRA or by claiming certain deductions, but this strategy is complex and may not be worth the effort. Speak with a tax professional about whether it makes sense for your situation.

What if I move out of Michigan after I retire?

If you move to another state that does tax Social Security, you will owe that state's tax on your benefits. If you move to another state that does not tax Social Security, you will not owe tax there. Your federal tax obligation does not change based on where you live.

Is there a Michigan tax form I need to file for Social Security?

No. Since Michigan does not tax Social Security, you do not file a separate Michigan form for these benefits. You only file a federal return if your income requires it.