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Taxing Pension in Michigan
Old 03-04-2011, 03:27 PM   #1
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Taxing Pension in Michigan

How about that for a hot topic?? With all the buzz nationally on States proposing taxing pensions, and Michigan being one of a few that hasn't, (now seriously talking about it), I have a question and am wondering if I'm missing something simple. Here it is.....While DRAFT figuring my state taxes today, my federal AGI (including pension income) was factored in the numbers before the state applied the 4.35% income tax due. Seems to me, that being the case that the STATE is already taxing retirement income?! Do taxes myself without T/T. Thanks for the help.....
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Old 03-04-2011, 03:32 PM   #2
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Does your state take the AGI and then do some sort of exclusion (perhaps in a worksheet) to compute the taxes - kind of like how capital gains and dividends are taxed on the Federal forms.

If Michigan states that pensions are not taxed then there has to be a way to get to there.

Somethings not quite right
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Old 03-04-2011, 04:58 PM   #3
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Where is the pension coming from?
I think government and military pensions are exempt, but private pensions are only exempt up to a certain dollar figure, so part of a private pension might be subject to tax, although the limit is fairly high.
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Old 03-04-2011, 05:18 PM   #4
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Originally Posted by geerman View Post
How about that for a hot topic?? With all the buzz nationally on States proposing taxing pensions, and Michigan being one of a few that hasn't, (now seriously talking about it), I have a question and am wondering if I'm missing something simple. Here it is.....While DRAFT figuring my state taxes today, my federal AGI (including pension income) was factored in the numbers before the state applied the 4.35% income tax due. Seems to me, that being the case that the STATE is already taxing retirement income?! Do taxes myself without T/T. Thanks for the help.....
My pension in MO is state income tax exempted on the first 32K. There was a line item on the state return that addressed it and I went through the formula. If you use turbo tax and determine to them you have a pension it should notify you and reduce your income tax accordingly. Something else, is possible, is your exemption taking away from you if your AGI is too high? In MO you lose it if your AGI is above 85K.
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Old 03-05-2011, 08:00 AM   #5
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I live in Michigan and just did my taxes. The state exempts private pensions up to $43,440 per person, so for married filing jointly private pensions are tax free up to about $87K. The place that you input your exemption is Schedule 1, line 12.

Public pensions are tax free with no limit.
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Old 03-05-2011, 10:13 AM   #6
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Wow, I didn't realize that so many state employees don't pay state tax on their pension income. That would sure be a hard bennie to be asked to give up (if that is going to happen due to states needing money).

A Federal pension is fully taxable by everybody...just like regular income. Always just took it for granted, and have figured "taxes" into "retirement expenses" as best as I can.

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Old 03-05-2011, 10:17 AM   #7
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It seems like this would be a much easier way of effectively reducing pension obligations. I suppose folks could move out of the state to avoid, but governments could get a significant chunk of money from this.
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Old 03-05-2011, 10:38 AM   #8
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A Federal pension is fully taxable by everybody...
No, it might not be. It depends on your state of residence:

Taxes by State
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Taxing Pension
Old 03-05-2011, 11:08 AM   #9
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Taxing Pension

BINGO!!....Good posts by a few, and TRAVELOVER hit it on the head simply. Line 12, schedule 1 removes retirement income from the AGI. I E/R in Dec 09 at 52 and have never dealt with schedule 1 before, so it was foreign....(read dummy!!)....thanks much!! Always enjoy the wealth of information from folks here, although don't post much.....On a side note, kinda figures now that I can collect tax free from the state, the rules look to change!!!.....Might be considered a "HIGH CLASS PROBLEM!"
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Old 03-05-2011, 11:39 AM   #10
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Wow, I didn't realize that so many state employees don't pay state tax on their pension income. That would sure be a hard bennie to be asked to give up (if that is going to happen due to states needing money).

A Federal pension is fully taxable by everybody...just like regular income. Always just took it for granted, and have figured "taxes" into "retirement expenses" as best as I can.

Amethyst
It is a good benefit no doubt, but I believe the reasoning in some of the public pensions not being taxed is that some of these pensioners did not pay into social security, thus not being able to get that exemption. I know that is not the case in all however.
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Old 03-05-2011, 11:57 AM   #11
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That may be the case. I don't pay into SS either (I pay into my pension fund, and my agency matches my payment, so it's the same principle) and won't get any SS, and I'm still taxed by everybody....but if there's one thing I've learned from the board, it's that there are as many pension plans as there are governments. And they all think the next guy over got a better deal

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It is a good benefit no doubt, but I believe the reasoning in some of the public pensions not being taxed is that some of these pensioners did not pay into social security, thus not being able to get that exemption. I know that is not the case in all however.
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Old 03-05-2011, 12:31 PM   #12
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That may be the case. I don't pay into SS either (I pay into my pension fund, and my agency matches my payment, so it's the same principle) and won't get any SS, and I'm still taxed by everybody....but if there's one thing I've learned from the board, it's that there are as many pension plans as there are governments. And they all think the next guy over got a better deal

Amethyst
Sounds like you got alot more to complain about than I do as I benefited this year from that exemption and it saved like $1200. I loved that saying that someone quoted a few weeks ago. "Dont tax you, dont tax me, tax the person behind the tree". Unfortunately for you Amethyst, you appear to be the one behind the tree on this one
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Old 03-05-2011, 04:51 PM   #13
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It is a good benefit no doubt, but I believe the reasoning in some of the public pensions not being taxed is that some of these pensioners did not pay into social security, thus not being able to get that exemption. I know that is not the case in all however.

Another factor (although a small one) is that one of the arguments used when Ohio recently decided to exempt military pensions from state taxation is that it would be a lure to military retirees looking for a state to live in.

You might not have to pay that particular tax, but you would still be spending money and generating income from sales taxes, property taxes, etc.

Speaking just for myself, I had been sure that I would be retiring to a state with no income tax, and it was a decided bummer to have to pay the Ohio state income tax when I wound up here. So getting that exemption (it started last year) was a big deal for me, and may be a big factor in keeping me here.
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