Does Michigan Tax Social Security and Retirement Income?

Michigan does not tax Social Security

Michigan’s return starts from federal adjusted gross income, so the part of a Social Security benefit taxed federally arrives on the MI-1040 and is then removed. It is entered as a subtraction on Schedule 1, line 14, with no income limit and no age test. Taxable Tier 1 and Tier 2 railroad retirement benefits are subtracted on Schedule 1, line 11. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

Social Security does not use up any of the retirement subtraction described below: the two are claimed side by side. For tax years 2026 through 2028 the same is true of the Michigan Standard Deduction for people born after 1952, who before 2026 had to reduce that deduction by the Social Security they subtracted. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Pensions are subtracted up to $67,610 single or $135,220 joint; military pensions in full

From 2012 Michigan limited the pension subtraction by year of birth. Public Act 4 of 2023, the Lowering MI Costs Plan, unwound those tiers over four years. For tax year 2026 and every year after, a taxpayer of any birth year may deduct combined public and private retirement benefits up to the full inflation-adjusted maximum. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

For 2026 that maximum is $67,610 for a single or married-filing-separately return and $135,220 for a joint return. It is one limit per return, covering private pensions, IRA distributions and government pensions together, and it is claimed on Form 4884 and carried to Schedule 1, line 27. (Michigan Department of Treasury, 2026 Michigan Income Tax Withholding Guide (Form 446))

Government pensions follow the same limit for anyone born after 1945: a federal or Michigan public pension is added to private retirement income and the total is capped at the maximum. Two groups keep an unlimited subtraction for public pensions: people born before 1946, and retired police officers, firefighters, state police troopers and sergeants, and county corrections officers, along with federal retirees from substantially similar jobs. Any public pension they subtract reduces the room left for private retirement income. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

Military and Michigan National Guard retirement benefits are subtracted in full on Schedule 1, line 11, outside Form 4884. The amount subtracted there, together with any railroad retirement, reduces the maximum available for other pensions and IRA withdrawals. A retired officer with a $40,000 military pension filing single would have $27,610 of the 2026 maximum left for other retirement income. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

IRA withdrawals count as retirement benefits and share the same limit

Treasury treats most income reported on Form 1099-R as a retirement or pension benefit, including IRA distributions and most payments from defined contribution plans. IRA withdrawals qualify once the owner is 59½, or earlier if taken as a series of equal periodic payments for life. Qualifying withdrawals join pension income on Form 4884, so the two together are untaxed up to $67,610 or $135,220 and taxed at 4.25% above that. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

Not every plan qualifies. The MI-1040 instructions exclude 457 plans, the federal Thrift Savings Plan, 401(k) balances attributable to unmatched employee contributions alone, and amounts received before the recipient could retire under the plan. Money rolled from one plan to another is treated as if it had stayed in the original plan, so a 457 account rolled into an IRA is still not deductible. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

A Roth conversion is included in federal AGI and is therefore Michigan income, but Treasury treats the converted amount as qualifying for the pension subtraction, within the limit, if the owner is at least 59½ at the time. A conversion that fits under the unused part of the maximum adds nothing to Michigan tax; the part above it is taxed at 4.25%. (Michigan Department of Treasury FAQ: Are conversions from a regular IRA to a Roth IRA subject to Michigan individual income tax?)

Qualified Roth IRA withdrawals are excluded from federal AGI and so never reach the Michigan return. Only the federally taxable part of a traditional IRA distribution can be subtracted. (Michigan Department of Treasury, Revenue Administrative Bulletin 2017-21, Individual Retirement Arrangements)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Interest, dividends and capital gains are taxed at 4.25%

Long-term capital gains and qualified dividends are taxed at the same flat rate as other income. Interest on U.S. government obligations is subtracted on Schedule 1, line 10. Interest and dividends from other states’ municipal bonds, exempt federally, are added back on Schedule 1, line 1. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

Only people born before 1946 have a deduction aimed at investment income. On Schedule 1, line 28, they may subtract interest, dividends and capital gains up to $14,688 on a single return or $29,376 on a joint return. Those are the 2025 amounts; the 2026 amounts had not been published when this page was reviewed. The limit is reduced dollar for dollar by retirement benefits subtracted on lines 11 and 27. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

Michigan taxes all taxable income at one rate. The law allows the rate to fall in a year when general fund revenue grows faster than inflation, so Treasury confirms it each spring. For fiscal year 2025 revenue fell 1.56% while inflation was 2.70%, and the rate for the 2026 tax year stays at 4.25%. (Michigan Department of Treasury notice, 4.25% Income Tax Rate for Individuals and Fiduciaries in 2026 Tax Year)

The personal exemption for 2026 is $5,900 for each filer, spouse and dependent, up from $5,800 in 2025. (Michigan Department of Treasury: Withholding Tax Information by Calendar Year (rate and personal exemption))

Michigan has no general standard deduction and no additional exemption for reaching 65. There are special exemptions for people who are deaf, blind or have certain disabilities, and a $500 exemption for a qualified disabled veteran. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

The example calculations on this page treat all pension and IRA income as qualifying private retirement benefits, subtract it up to the 2026 maximum, and compare the result with the Michigan Standard Deduction. In all three households the retirement subtraction gives the lower tax. No city income tax is included. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

Twenty-four Michigan cities levy their own income tax, among them Detroit, Grand Rapids, Lansing, Flint and Saginaw. Treasury administers Detroit’s; the others run their own. (Michigan Department of Treasury: Which cities impose an income tax?)

Detroit’s rate is 2.4% for residents and 1.2% for nonresidents. Pensions and annuities are not subject to the city tax, and neither is Social Security, though distributions taken before retirement are. A resident’s interest, dividends and capital gains are taxable to the city, apart from interest on federal, state and local government obligations. (Michigan Department of Treasury, 2025 City of Detroit Individual Income Tax Returns, Forms and Instructions)

The state City Income Tax Act, under which Michigan cities levy their income taxes, lists the proceeds of insurance, annuities, pensions and retirement benefits among the payments not subject to tax. (MCL 141.632, City Income Tax Act, payments and benefits not subject to tax)

Retirement and pension subtraction: up to $67,610 (single) or $135,220 (joint) of qualifying retirement income for 2026, at any age at which the distribution itself qualifies. (Michigan Department of Treasury, 2026 Michigan Income Tax Withholding Guide (Form 446))

Michigan Standard Deduction: a filer born after 1945 who has reached 67 (the older spouse on a joint return) may choose a deduction of $20,000 single or $40,000 joint against all income instead of the retirement subtraction. For those born from 1946 through 1952 it is reduced only by military pay and by military and railroad retirement benefits subtracted elsewhere. For those born after 1952 it is also reduced by the personal exemptions, which leaves $14,100 for a single filer and $28,200 for a couple in 2026. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

The two are alternatives, chosen each year. Treasury’s 2026 example, worked with a $5,800 exemption, is a single filer born in 1954 with $18,000 of wages, $5,000 of retirement benefits and $12,000 of taxable Social Security: the retirement subtraction leaves $12,200 of taxable income, the standard deduction $3,000. The standard deduction suits people 67 or older who are still working or living mainly on investment income. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

A surviving spouse who has not remarried can compute the subtraction using the year of birth of an older deceased spouse, provided a retirement or Social Security subtraction was claimed on the joint return for the year of death. The single-return limits apply. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Michigan's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Property tax is the larger bill for many Michigan retirees. As a comparative figure, the Tax Foundation’s analysis of Census data puts property taxes on owner-occupied homes at 1.19% of value in 2024, the 14th highest among the states. That is about $4,200 a year on a $350,000 home, with wide local variation. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figure from Census ACS data))

Homes are assessed at 50% of true cash value, but tax is charged on taxable value, which can rise each year by no more than 5% or the rate of inflation, whichever is less, plus additions (the Proposal A cap). When ownership transfers, the cap is lifted: taxable value for the following year resets to the full assessed value. Transfers between spouses are not counted, nor are transfers of residential property to a parent, sibling, child or grandchild who does not put it to commercial use. (MCL 211.27a, General Property Tax Act, taxable value and transfer of ownership)

The State Tax Commission set the inflation multiplier for 2026 at 1.027, so the taxable value of a home that did not change hands rose by 2.7% at most. (Michigan State Tax Commission, Bulletin 15 of 2025, Procedural Changes for the 2026 Assessment Year)

The homestead property tax credit is claimed on Form MI-1040CR, with the income tax return or on its own. For 2025, the latest year with published limits, it is not available when total household resources exceed $71,500 or the home’s taxable value exceeds $165,400; it shrinks by 10% for each $1,000 of resources above $62,500, and the maximum is $1,900. Total household resources count all Social Security and other income excluded from AGI. (Michigan Department of Treasury, 2025 Homestead Property Tax Credit (MI-1040CR) instructions)

The credit refunds part of the property tax that exceeds 3.2% of total household resources. Most claimants under 65 receive 60% of the excess. A claimant 65 or older receives 100% with resources of $21,000 or less, stepping down four points for each $1,000 to 60% above $30,000. (MCL 206.522, Income Tax Act, determination of the homestead property tax credit)

Michigan’s sales tax is 6% statewide, and cities and other local units are not allowed to add their own. Electricity, natural gas and home heating fuel for residential use are taxed at 4%. (Michigan Department of Treasury: Sales and Use Taxes)

With no local add-ons, the Tax Foundation’s comparative figure for the average combined state and local rate is also 6.00% as of January 2026, ranking 38th. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figure))

Food and food ingredients are exempt, as are prescription drugs for human use. Prepared food intended for immediate consumption, such as restaurant meals, is taxed. (MCL 205.54g, General Sales Tax Act, exemption for food and prescription drugs)

Michigan’s estate tax is still on the books, but it is defined as an amount equal to the maximum federal credit allowed for estate and inheritance taxes paid to states. (MCL 205.232, Michigan Estate Tax Act, tax on transfer of estate)

The federal credit that this formula depends on, section 2011 of the Internal Revenue Code, has been repealed. With no credit to match, the Michigan formula produces no tax. (26 U.S.C. 2011, credit for State death taxes (repealed))

The State Treasurer’s annual report notes that the estate tax replaced the inheritance tax for deaths after September 30, 1993, and that it ended at the federal level by January 1, 2005; its revenue table has no estate tax line and shows $0 on the inheritance tax line in each of the four most recent fiscal years. (Michigan Department of Treasury, 2022-2023 Annual Report of the Michigan State Treasurer)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

Tax year 2026 is the first with the retirement subtraction fully phased in. For 2025 it was 75% of the maximum ($49,423 single, $98,846 joint) and open only to people born from 1946 through 1966. Both restrictions are gone for 2026 and later years. (Michigan Department of Treasury, Revenue Administrative Bulletin 2026-1, Treatment of Retirement Income Under Public Act 4 of 2023)

Public Act 24 of 2025 applies to tax years 2026 through 2028 only. Unless the legislature extends it, from 2029 people born after 1952 who take the Michigan Standard Deduction will again have to reduce it by the Social Security they subtract. (Michigan Department of Treasury notice, Social Security Taxation Changes in Public Act 24 of 2025)

The retirement maximum is adjusted every year by the U.S. Consumer Price Index, so the $67,610 and $135,220 limits apply to 2026 only and a new figure will apply for 2027. (Michigan Department of Treasury: Retirement and Pension Benefits)

A Michigan resident is someone domiciled in the state: the place of their true, fixed and permanent home, to which they intend to return whenever they are away. Domicile continues until a new permanent home is established. Anyone who lives in Michigan for at least 183 days of the tax year is also deemed a resident. (MCL 206.18, Income Tax Act, resident and domicile)

A temporary absence, such as spending the winter in a southern state, does not make someone a part-year resident. A person who moves their permanent home into or out of Michigan during the year is a part-year resident and files Schedule NR with the MI-1040. Income reported on Form 1099-R and nonbusiness interest and dividends are allocated to the state of residence when received. (Michigan Department of Treasury, 2025 MI-1040 Individual Income Tax Forms and Instructions (Schedule 1, Form 4884))

Federal law (4 U.S.C. 114) bars a state from taxing the retirement income of someone who is not its resident or domiciliary. A Michigan public school pension or a 401(k) built at a Michigan employer is taxed only by the state where the retiree lives when it is paid. A pension earned elsewhere becomes Michigan income once the recipient is domiciled here, with the same subtraction. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)