Residents of Michigan may end up paying less tax on their retirement benefits.
Residents of Michigan may end up paying less tax on their retirement benefits. (Photo: WXMI Grand Rapids, MI)
The state’s Senate Committee on Finance, Insurance, and Consumer Protection has advanced a proposal, introduced by Sen. Kevin Hertel, to minimize the taxes that retirees pay on their benefits.
Current law, enacted in 2011, limits the deductions available to taxpayers receiving retirement or pension benefits. This proposal would lighten those restrictions to relieve the burden on older Americans living on fixed incomes and relying on retirement plans and pensions.
With this act, at least $1,000 yearly will be saved by Michigan households. Gov. Gretchen Whitmer, who fought for this tax act, mentioned that that money was for prescriptions, groceries, gas, or gifts for grandkids.
The deduction would be based on the taxpayer’s birth year. According to the Senate Fiscal Agency’s bill analysis, the amount of the deduction allowed would increase yearly. The bill would result in a $39 million decline in General Fund revenue in the fiscal year 2022-2023 and a $175 million reduction the following year. According to the report, the revenue loss would likely exceed $500 million by the fiscal year 2026-2027, when the law would be fully phased in.
When it comes to financial planning, where a person lives in retirement can make a big difference. Some states do not tax retirement benefits, while others may tax IRA and employer-sponsored plan withdrawals but not pensions. States also disagree on whether or not to tax Social Security benefits. From AARP analysis, eight states have no income tax, including Social Security benefits. To learn more about this, check it through this link. http://bit.ly/3XNhOzZ
