Certain Michigan retirement and pension deductions depend on whether the retirement system was covered by the Federal Social Security Act (SSA). Michigan uses the SSA Exempt Test to determine whether retirement benefits qualify for enhanced retirement and pension deductions.
This question is most commonly encountered when completing the Michigan retirement and pension deduction interview.
Program Entry
Michigan Return → Subtractions From Income → Deduction Based on Year of Birth → SSA Exempt Test
What Does "SSA Exempt" Mean?
A retirement plan is considered SSA exempt if the employment that generated the retirement benefit was not covered by Social Security taxes during the period of employment.
In other words, the employee did not participate in Social Security for that employment and instead contributed to a separate retirement system.
Examples may include certain:
- Federal government retirement systems
- State government retirement systems
- Local government retirement systems
- Public school employee retirement systems
- Other governmental pension plans that did not participate in Social Security
Why Does Michigan Ask This Question?
Michigan provides different retirement deduction calculations based on:
- The taxpayer's date of birth
- Retirement status
- Type of retirement income received
- Whether the retirement system was covered by Social Security
For some taxpayers, retirement benefits from employment that was not covered by the Federal Social Security Act may qualify for a larger retirement deduction.
Who May Qualify for the Greater Retirement Deduction?
A recipient born between January 1, 1946 and January 1, 1964, or a taxpayer who was retired as of January 1, 2013 and born after December 31, 1952, may qualify for a greater retirement deduction if the taxpayer, or spouse on a joint return, receives retirement or pension benefits from employment with a governmental agency that was not covered by the Federal Social Security Act (SSA).
The retirement deduction interview uses the SSA Exempt Test to determine whether the retirement income qualifies for this enhanced deduction.
How Do I Determine If My Retirement Plan Was SSA Exempt?
Review the retirement system from which the pension or retirement benefit is paid.
Generally, the retirement plan may be SSA exempt if:
- Social Security taxes were not withheld from the wages earned under that retirement system; and
- The employee participated in a separate governmental retirement system instead of Social Security.
If you are unsure, review:
- Form W-2 from the years worked under the retirement system
- Pension plan documentation
- Retirement benefit statements
- Information provided by the retirement system administrator
Common Examples
May Be SSA Exempt
- Certain public school retirement systems
- Certain state retirement systems
- Certain municipal retirement systems
- Certain federal retirement systems
Generally Not SSA Exempt
- Traditional private-sector employment covered by Social Security
- Retirement benefits earned from employment where Social Security taxes were withheld
How Does This Affect My Michigan Return?
The answer to the SSA Exempt Test may affect:
- Eligibility for Michigan retirement deductions
- The amount of retirement income that may be deducted
- Which retirement deduction calculation applies
A taxpayer who qualifies under the SSA Exempt Test may receive a larger retirement deduction than would otherwise be allowed.
Notes
- The SSA Exempt Test applies only to certain retirement and pension deduction calculations.
- Not all retirement income qualifies for the enhanced deduction.
- The retirement system, not the current age of the pension recipient, generally determines whether the retirement income is SSA exempt.
- Keep records supporting the retirement system's SSA status with your tax records.
- If you receive multiple retirement benefits, each retirement system may need to be evaluated separately.