Michigan taxes most pensions, but not all of them

Michigan taxes pension income differently depending on where it comes from and when you were born. If you receive a pension from a Michigan employer, a federal employer, or the military, Michigan will tax it as regular income. However, if you were born before 1946, Michigan exempts all of your pension income from state tax. If you were born between 1946 and 1952, you get a partial exemption that phases out as you age. This means your tax bill depends on your birth year and the source of your pension — not just the amount you receive.

The state does not tax federal Social Security benefits, but it does tax most other retirement income. Understanding which pensions are taxable in Michigan requires you to know your birth date and what type of pension you have. The rules changed in 2011, which affects how much you owe depending on when you started receiving payments.

Key Takeaways

  • Michigan taxes all pension income for people born in 1952 or later, with no exemptions based on age.
  • People born before 1946 pay no Michigan tax on any pension income, regardless of the source.
  • People born between 1946 and 1952 receive a declining exemption that decreases by 3.2 percent each year after age 67.
  • Military pensions, federal employee pensions, and state pensions are all taxable in Michigan unless you may have access to for an age-based exemption.
  • You report Michigan pension tax on Form MI-1040, the state income tax return, not on a separate form.

How Michigan's pension exemption works by birth year

Your birth year determines whether Michigan taxes your pension at all. If you were born before January 1, 1946, you owe no Michigan income tax on any pension income. This exemption is complete — it covers all pensions from all sources, and it does not phase out or change as you age.

If you were born between January 1, 1946, and December 31, 1952, you receive a partial exemption that decreases over time. At age 67, you can exclude a percentage of your pension income from Michigan tax. That percentage starts at 100 percent (if you were born in 1946) and declines by 3.2 percent for each year after you turn 67. By the time you reach age 80, the exemption reaches zero, and you owe tax on all pension income.

If you were born on or after January 1, 1953, Michigan taxes all of your pension income with no exemption. There is no age at which the exemption kicks in — you pay tax on your full pension amount from the year you start receiving it.

Which pensions are taxable and which are not

Michigan taxes pensions from most sources. This includes pensions from Michigan state employers, local government employers, private employers, federal employers, and the military. The source of the pension does not matter — if you do not may have access to for an age-based exemption, you owe Michigan tax on it.

The main income Michigan does not tax is federal Social Security benefits. Even if you were born after 1952 and owe tax on your pension, your Social Security check is not subject to Michigan income tax. Some other retirement income, such as distributions from IRAs or 401(k) plans, is taxable in Michigan, but those are not pensions — they are treated as ordinary income.

If you receive a pension from outside Michigan — for example, from a state pension plan in another state — Michigan still taxes it if you live in Michigan and do not may have access to for an exemption. The state where the pension originated does not matter. What matters is where you live and your birth year.

How to calculate your Michigan pension tax

Start by finding your total pension income for the year. This is the amount shown on your 1099-R form or pension statement. If you were born before 1946, you stop here — you owe nothing to Michigan.

If you were born between 1946 and 1952, calculate your exemption. Subtract your birth year from 2013 to find your exemption percentage at age 67. For example, if you were born in 1950, your exemption at age 67 is 96 percent (2013 minus 1950 equals 63, and 100 minus 3.2 times 3 years equals 90.4 percent — this is simplified; the actual calculation uses a specific table). Then subtract 3.2 percent for each year you are older than 67. Multiply your total pension income by the remaining exemption percentage. The result is your taxable pension income.

If you were born in 1953 or later, your entire pension income is taxable. You report this amount on Form MI-1040, Michigan's state income tax return, on the line for pension and annuity income. Michigan will tax it at the state income tax rate, which is currently 4.25 percent.

Reporting pension income on your Michigan tax return

You report Michigan pension income on Form MI-1040, the Michigan Individual Income Tax Return. This is the main state tax form you file each year. On this form, you list your pension income in the income section, explore any exemptions you may have access to for, and calculate the tax owed.

You will also receive a 1099-R form from your pension provider showing the total amount paid to you during the year. Attach a copy of this form to your Michigan return. If you received pensions from multiple sources, you will receive multiple 1099-R forms — list all of them on your return.

If you are unsure whether you may have access to for an exemption, you can contact the Michigan Department of Treasury. They can confirm your birth year exemption status and help you calculate the correct amount to report. You can also work with a tax preparer who is familiar with Michigan pension rules.

What happens if you do not report pension income correctly

If you underreport your pension income or claim an exemption you do not may have access to for, Michigan will assess back taxes, interest, and penalties. The interest rate varies but is typically several percent per year. Penalties for underreporting can range from 5 percent to 25 percent of the unpaid tax, depending on whether the error was negligent or intentional.

The Michigan Department of Treasury matches information from 1099-R forms filed by pension providers. If your return does not match what the provider reported, the state will send you a notice. You then have the chance to correct the return or explain the difference. It is easier and less expensive to report correctly from the start than to deal with an audit or correction notice later.

Special situations: Military pensions and federal employee pensions

Military pensions are taxable in Michigan unless you may have access to for an age-based exemption. Even though military pensions may receive favorable treatment in some states, Michigan treats them the same as any other pension. If you were born before 1946, your military pension is not taxed. If you were born in 1953 or later, it is fully taxable.

Federal employee pensions, including those from the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), are also taxable in Michigan under the same rules. The fact that your employer was the federal government does not exempt you from Michigan tax.

If you are a Michigan resident who receives a pension from another state's public employee system, Michigan taxes that pension income the same way. The state that issued the pension has no bearing on Michigan's tax treatment.

Frequently Asked Questions

Do I have to pay Michigan tax on my pension if I moved out of Michigan after I retired?

No. Michigan only taxes income earned by residents. If you moved to another state and established residency there, Michigan has no claim to your pension income. However, you must be able to prove you are a resident of the new state — typically by showing a driver's license, voter registration, or property ownership. If you still own a home in Michigan or maintain other ties to the state, Michigan may argue you are still a resident.

What if I was born on December 31, 1945 — do I get the full exemption?

Yes. Michigan's rule is based on birth year, and the cutoff is January 1, 1946. If you were born on December 31, 1945, you were born before 1946 and may have access to for the full exemption on all pension income.

Can I claim a Michigan pension exemption if I receive a pension from another state?

Yes, if you may have access to by birth year. The exemption applies to all pension income, regardless of which state or employer issued it. If you were born before 1946, you owe no Michigan tax on any pension. If you were born between 1946 and 1952, the exemption applies to your total pension income from all sources combined.

Does Michigan tax my 401(k) withdrawals the same way as my pension?

No. Withdrawals from 401(k) plans and IRAs are taxed as ordinary income in Michigan, not under the pension exemption rules. Even if you were born before 1946 and have a full pension exemption, your 401(k) withdrawals are fully taxable. The exemption applies only to pensions and annuities, not to retirement account distributions.

If I turn 67 this year, when does my exemption start?

Your exemption applies starting in the tax year you turn 67. If you turn 67 in 2024, you can claim the exemption on your 2024 tax return. You do not have to wait until the end of the year — the exemption is available for the entire year in which you reach age 67.