Overview of Michigan Retirement Tax Friendliness
Michigan does not tax Social Security retirement benefits, and it provides deductions on all other types of retirement income. Homeowners pay relatively high property tax rates, but sales taxes are moderate.
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Annual Social Security Income
Annual Retirement Account Income
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Annual Income from Private Pension
Annual Income from Public Pension
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Michigan Retirement Taxes
There are many reasons to retire in Michigan. It has the most freshwater coastline of any state besides Alaska, it has beautiful and mild summers, one of the highest number of public golf courses of any state (more than 650) and the rustic wild of the Upper Peninsula. There are also reasons you may not want to retire in the Great Lakes State, particularly the long, cold winters.
And what about Michigan’s tax system? In general, it's a plus. Michigan does not tax Social Security retirement income and provides a relatively large deduction on all other types of retirement income. Homeowners pay somewhat high property tax rates, but sales taxes are manageable.
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Is Michigan tax-friendly for retirees?
In short, Michigan is a relatively tax-friendly destination for retirees. It does not tax Social Security and it provides a sizable deduction for seniors on other types of retirement income. Sales taxes are somewhat below average, while property taxes are above average. Michigan does not have an estate tax or an inheritance tax.
Is Social Security taxable in Michigan?
Social Security payments are not taxed in Michigan. Any Social Security retirement income that is considered taxable on your federal income tax return can be subtracted from your Adjusted Gross Income (AGI) when filing your state taxes in Michigan.
Are other forms of retirement income taxable in Michigan?
Yes, but retirees can deduct a portion or all of this income. The Lowering MI Costs Plan, which was signed into law in 2023, retirees can choose how between several methods for calculating their deduction. First, they can opt for a tiered subtraction system with prescribed deduction amounts based on their year of birth and tax filing status. They can instead choose to use the new "phase-in" subtraction system, which will gradually allow for a larger deduction each year until maxing out in 2026. Lastly, certain fire, police and corrections retirees can opt for what's known as the Qualified Fire, Police, and Corrections Retiree Subtraction, which allows them to fully deduct retirement benefits from their service.
How high are property taxes in Michigan?
The median effective property tax rate in Michigan is 1.48%, which is significantly higher than the national median rate (1.01). That adds up to an annual tax bill of $2,551 for the typical homeowner. Of course, property taxes are higher in some areas than in others. In Wayne County the average effective rate is 1.90%. In Oscoda County, it is less at only 1.04%.
What is the Michigan homestead property tax credit?
The homestead property tax credit is available to homeowners in Michigan who meet certain eligibility requirements for income and property value. Homeowners who are eligible can claim a credit on all property taxes owed.
The credit application is filed with your annual income tax return. To be eligible, you must have household income of $63,000 or less and your home’s taxable value must be no more than $143,000. You also need to have owned or were contracted to pay rent while occupying a Michigan homestead for at least six months during the year where property taxes and/or service fees were imposed.
You are not eligible if 100% of your household resources were received from the Michigan Department of Health and Human services.
Another form of property tax relief available to homeowners in Michigan is the principal residence exemption, or PRE. This allows homeowners to exempt their primary residence from up to 18 mills of local school district operating taxes. (A mill is one tenth of a percent, so 18 mills is 1.8%, which applies to taxable value.)
How high are sales taxes in Michigan?
The state sales tax rate in Michigan is 6%. But because the state has no local sales taxes, its state and local combined rates are considered to be below average.
What other Michigan taxes should I be concerned about?
If you plan on working during retirement, keep in mind that many Michigan cities collect their own income taxes in addition to the state income tax rate of 4.05%. In general, these city income taxes range from about 1% to 1.5%, but the Detroit city income tax is 2.4% while the income tax in Highland Park is 2%. Those taxes do not apply to any form of retirement income, however.
Michigan does not have an estate tax or inheritance tax.