Our legislative director has been fielding numerous inquiries from our members concerning retirement. Our treasury team is offering assistance to support all our members who ventured and are planning their retirement. The introduction of Public Act 4 marks a pivotal shift in retirement planning. We’ll explore the changes in state tax policies about retirement and how they impact your retirement plans.
Introduction of Public Act 4 & Retirement Changes
Public Act 4 (PA4), the Lowering MI Costs Plan, was enacted into Michigan law on March 7, 2023. This phases out the 3-tier system of limitations and restrictions imposed on the retirement subtraction since 2012. This adjustment allows taxpayers to select the most advantageous tax scenario for their retirement benefits.
When Public Act 4 Takes Effect
On February 13, 2024, PA4 officially took effect. Although it was signed into law on March 7, 2023, the Legislature didn’t grant it immediate effect. According to Article IV § 27 of Michigan’s 1963 Constitution, an act typically becomes effective 90 days after the conclusion of the legislative session during which it was passed unless it receives immediate effect through a two-thirds vote in each legislative house. The Michigan Constitution mandates that the Legislature adjourn sine die after each regular session, signifying the final adjournment for the year without setting a date for reconvening. In 2023, the Legislature adjourned sine die on November 14th, thus establishing February 13, 2024, as the effective date for PA4.
Deduction Limit Changes With PA4 Michigan
The deductions for retirement income, based on the taxpayer’s birth year and age during the tax year, gradually diminish over a four-year period, which started in 2023. This entails a reduction in the taxation of retirement income over this phased-in period, except for specific exemptions extended to public safety officers and employees. From 2023 onward, these individuals can fully deduct their retirement income.
The Retirement & Pension Estimator
This tool assists in identifying the deductions or subtractions for which you qualify and determining which option provides the most significant advantage: the Retirement subtraction, Michigan Standard Deduction, or Dividend/Interest/Capital Gains Deduction.
Refrain from using this estimator if any of the following circumstances apply:
- The taxpayer is single, born in 1961, and passed away in 2023 before turning 62.
- The taxpayer is single, born in 1956, and passed away in 2023 before turning 67.
- The taxpayer is a surviving spouse who is younger than their deceased spouse, and the deceased spouse was born in 1961 and passed away in 2023 before turning 62.
- The taxpayer is a surviving spouse who is younger than their deceased spouse, and the deceased spouse was born in 1956 and passed away in 2023 before turning 67.
- The taxpayer is a part-year resident or a nonresident.
Alongside this resource, download the 2023 Michigan Pension Schedule for completion. Pensioners from the Police and Fire departments can claim a refund for the state taxes they paid on their pensions in 2023. Please inform your tax preparer about Form 4884, which should facilitate the refund process. Additionally, you can find directions for completing Form 4884 through the provided link.
Learn More About Retirement Planning
If you’re seeking retirement and need additional assistance, please contact your POAM Business Agent or contact us. Our team is happy to assist you in your retirement endeavors.
Some information was sourced from the Michigan government. For more information, please visit their website.
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