Michigan offers qualifying taxpayers a subtraction from their state income for "Retirement Benefits that are Exempt from Michigan Income Tax". Refer to the following to help you determine if you qualify for this subtraction:
1. Can a retiree who is a surviving spouse born prior to 1/1/1946, has public retirement/pension benefits, and receives pension benefits from a deceased spouse born after 12/31/1952 include the deceased spouse’s retirement when using worksheet 2?
- No, the survivor of a decedent born after 12/31/1952 is not able to deduct any of the decedent’s pension/retirement benefit. This is true even if the survivor could deduct the decedent’s pension/retirement benefit in a prior year (except the year of death). The benefit may be a “pension or retirement benefit” as defined in section 30(8) and therefore deductible under section 30(1)(f) but, even if that is true, the 30(1)(f) deduction is limited by section 30(9). In this situation, the subsection 9 limitation is zero.
2. How do I complete form 4884 when there is a Schedule NR, Nonresident and Part-Year Resident Schedule, involved?
- To calculate your pension/retirement subtraction, for each retirement/pension listed on form 4884, line 6 or line 14, only use the portion taxable by Michigan. This would be the amount included in Schedule NR line 10, column B. Do not use the amounts of retirement included in Schedule NR line 10, column C, as that is being subtracted as out-of-state income.Note that, while a retiree who is a part-year resident will “prorate” the pension (as explained here), there is not a corresponding “proration” of the subtraction limits. There is nothing in the law that limits the exemption amount due to residency.
For additional information, please refer to the MI-1040 Instructions and Form 4884.
Also refer to following Knowledge Base article by clicking here.
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