Could Michigan’s Tax On Pensions Be On The Way Out
Well this is interesting, Michigan’s House of Representatives may be looking to eliminate the hated tax on pensions. The House Tax Policy Committee voted 14-1 to put the exemption back on most pension incomes. On “most” pensions, interesting. The word “most” means that Public pensions would be 100% exempt from taxation and other retirement income would have higher deductibles for state income taxes. FYI: Social Security income would continue to be exempt.
The legislation House Bill 4006 will now move on to the House Ways and Means Committee for further consideration.
The Detroit Free Press is reporting on this new development, unfortunately the article does not explain which pensions are “most” pensions.
State Representative Joseph Bellino, a Republican from Monroe sponsored the legislation and was quoted in the article saying:
Repealing the change in the 2011 pension tax has been a point of discussion for many years…It’s time to stop balancing the budget on the backs of seniors.
Balancing the budget on the back of seniors, interesting. I am not making a judgement on whether Michigan should put the exemption back on “most” pensions, I just have a few questions.
In a press release from the office of State Representative Matt Hall we were informed he as part of the House Tax Policy Committee voted to advance the repeal proposal. In that press release he stated:
This tax was a bad idea when it was enacted in 2011, and it remains a bad idea to this day…But now there’s some good news. Our vote today starts us down the road to doing the right thing and providing senior citizens with well-earned, desperately needed tax relief…Government must become more limited, efficient and effective so taxpayers can get the relief they deserve…This bill approved today is a step in the right direction.
I would ask Representative Bellino and Hall do you believe that seniors who receive pensions, most of them which are state employees, should have no skin in the game and not contribute to our state but others seniors who do not have a pension should have skin in the game?
For instance how about seniors who have 401 K’s and IRA’s, should they not be charged the state income tax? Why should Michigan’s budget be balanced on their backs?
Michigan has a very complicated rules for retirees vary based on age, it is a three tiered system, the Center for Financial Planning explains it this way:
Tier 1: You were born before 1946
Tier 2: You were born between 1946 and 1952
Tier 3: You were born after 1952
Taxpayers born before 1946
If you were born before 1946, there is no change in the income taxes for your pension income. This means your social security income is exempt and so is income from public pensions. You don’t pay taxes on the first $49,027 ($98,054 if you’re married and filing jointly) from private pensions. You also get a senior citizen (over age 69) subtraction for interest, dividends and capital gains.
Taxpayers born between 1946 and 1952
If you were born between 1946 and 1952, your social security income is exempt and so is income from railroad and military pensions. You don’t get a senior citizen subtraction for interest, dividends and capital gains. Before age 67, you don’t pay taxes on the first $20,000 ($40,000 if you’re married and filing jointly) from private or public pensions. After age 67, you can subtract $20,000 ($40,000 if you’re married and filing jointly) from the amount you’ll pay taxes on unless you take the income tax exemption on military or railroad pensions.
Taxpayers born after 1952
If you were born after 1952, your social security income is exempt and so is income from railroad and military pensions. You don’t get a senior citizen subtraction for interest, dividends and capital gains. Before age 67, you are not eligible for any subtractions from your income from private or public pensions. After age 67, you can choose to continue to have social security and railroad or military income exempt or you can choose to subtract $20,000 ($40,000 if married and filing jointly) from the amount you’ll pay taxes on. If you choose to keep your social security and railroad or military income exempt, then you can claim a personal exemption.
That certainly is a whole lot of words, is it not?
If we do not want to balance the budget on the backs of seniors, an admirable goal, we should then not balance the budget on the backs of all seniors.
What are your thoughts, let's talk about it tomorrow, Friday, on my show.