Does Michigan Tax Retirement Income? Deductions by Birth Year

Michigan does tax retirement income, but with major carve-outs that leave many retirees owing little or nothing to the state. The flat rate is 4.25%. Social Security, Railroad Retirement, and military retirement pay are fully exempt at any age and any income level. And starting with the 2026 tax year, every retiree — regardless of birth year — can deduct up to $67,610 of qualifying pension and retirement income on a single return, or $135,220 on a joint return, before the 4.25% rate touches a dollar.¹

Retirement Income Michigan Never Taxes

Three income streams are exempt no matter your age, your other income, or your birth year.

Social Security benefits are fully exempt. Even the portion that’s taxable on your federal return gets subtracted back out on your Michigan return. Railroad Retirement benefits are treated the same way.²

Military retirement pay from service in the U.S. Armed Forces or the Michigan National Guard is also completely exempt. You’ll report it on Schedule W even if nothing was withheld, and then deduct the full amount on Schedule 1.³

Qualified Roth IRA distributions never appear on your Michigan return either, but for a different reason: they aren’t in your federal adjusted gross income to begin with, so there’s nothing for Michigan to tax and nothing to deduct.

The 2026 Deduction for Pension and Other Retirement Income

For everything else — traditional pensions, 401(k) withdrawals, 403(b) distributions, traditional IRA distributions — Michigan applies its 4.25% rate, then lets you subtract qualifying retirement income up to the annual cap. For the 2026 tax year, the cap is $67,610 for single filers and $135,220 for joint filers, applied to the combined total of your public and private retirement benefits.¹

If your qualifying retirement income sits below the cap, your Michigan tax on that income is effectively zero. If it exceeds the cap, only the excess is taxed at 4.25%.⁴ For most retirees the deduction absorbs the entire pension. Retirees with large defined-benefit pensions or several income streams stacked together are the ones who should check the math.

The dollar limits adjust annually with the Consumer Price Index, so they’ll continue to climb.⁵

Why Birth Year Still Matters

The 2026 full deduction is the endpoint of a four-year phase-in enacted by Public Act 4 of 2023. If you’re filing a return for an earlier year, or you fall into one of the older pre-existing tiers, your birth year still drives the calculation.⁶

The phase-in ran on this schedule:

2023: 25% of the maximum, for those born 1946 through 1958
2024: 50% of the maximum ($32,020 single / $64,040 joint), for those born 1946 through 1962
2025: 75% of the maximum ($49,423 single / $98,846 joint), for those born 1946 through 1966
2026: 100% of the maximum ($67,610 single / $135,220 joint), for all retirees regardless of birth year

⁷

For retirees born after 1966, the 2026 tax year is the first year any pension or 401(k) income gets a state deduction at all.

Born Before 1946

If you were born before 1946, your rules predate PA 4 and remain more generous in one respect: public pension benefits from federal, Michigan state, or eligible out-of-state government employment are deductible with no dollar cap. Private pension and retirement income is deductible up to the same $67,610 / $135,220 figures for 2026. On a joint return, the older spouse’s birth year determines the tier.⁷

Born 1946 Through 1952

Retirees in this range can pick between the PA 4 deduction and an older alternative: a $20,000 (single) or $40,000 (joint) subtraction that applies against all income, not just retirement income, reduced by any taxable Social Security you receive. For most people the PA 4 deduction is now larger. The older method only helps if you have very little pension income but substantial wages, interest, or other taxable income the pension-specific deduction can’t reach.⁷

How Michigan Classifies Different Retirement Accounts

The account type determines how the income is categorized before the birth-year deduction is applied.

Pensions and 401(k)/403(b) distributions from Michigan government or federal employment are public retirement benefits. For pre-1946 retirees these are uncapped; for everyone else they count toward the standard cap alongside private income. Private employer pensions and 401(k) distributions are private retirement benefits, subject to the cap.⁵

Traditional IRA distributions flow through your federal AGI into your Michigan return, where they qualify for the same age-based retirement subtraction as other private retirement income. Roth IRA distributions, as noted above, aren’t in AGI and aren’t taxed by Michigan.

Situations That Change the Answer

Public Safety Pensions

Retirees whose pension came from service as a public police officer, firefighter, state police trooper or sergeant, or county corrections officer can elect to deduct the full pension with no dollar cap and no birth-year limit. This election has been available since the 2023 tax year and generally beats the standard phase-in.⁵

Out-of-State Public Pensions

A public pension from another state qualifies for Michigan’s public pension treatment only if that state offers a similar or reciprocal deduction for Michigan public pensions. States that tax Michigan pensions without any deduction don’t qualify. States with no income tax at all raise a more complicated question that’s worth running past a tax professional or the Michigan Department of Treasury before you file.⁵

Early Withdrawals

Money pulled from a traditional retirement account before age 59½ generally does not qualify for the Michigan retirement subtraction. The full distribution is taxable on both your federal and Michigan returns, and the IRS adds a 10% additional tax on most early distributions with limited exceptions.⁸⁹

Part-Year Residents

If you moved in or out of Michigan during the year, the retirement deduction is prorated based on the ratio of your Michigan-source AGI to your total AGI. Your personal exemption and other deductions are prorated the same way.⁵

Withholding and Estimated Payments

Pension payers withhold Michigan income tax at 4.25%, reduced by the personal exemption you claim on Form MI W-4P.⁴ If your deduction is going to zero out your Michigan liability, filing an updated MI W-4P with the plan can stop or reduce withholding so you’re not overpaying all year.

Quarterly estimated payments are required if your expected Michigan liability after withholding and credits will exceed $500. This usually shows up when you have multiple retirement income sources and only one — or none — is withholding Michigan tax.¹⁰

Claiming the Deduction

The retirement subtraction is calculated on Form 4884, the Michigan Pension Schedule, and the result carries to line 27 of Schedule 1 on the MI-1040.¹¹ Form 4884 is organized by birth-year tier and by deduction method; you complete only the section that fits your situation.

Before you start, pull together every Form 1099-R you received. Each one shows the total distribution and the taxable portion for a pension, IRA, 401(k), or other retirement account. You’ll also need the taxable Social Security amount from your federal return, which is subtracted separately on Schedule 1. Form 4884 applies the correct phase-in percentage (or the full 100% for 2026 and later), accounts for income that’s already exempt like military retirement pay, and produces the subtraction figure that reduces your Michigan taxable income.¹²

1
State of Michigan. Revenue Administrative Bulletin 2026-1
2
Department of Treasury. Pension Recipients
3
Department of Treasury. Are Military Retirement Benefits Exempt From Michigan Individual Income Tax?
4
State of Michigan. 2026 Michigan Income Tax Withholding Guide
5
Michigan Legislature. MCL – Section 206.30
6
Michigan Legislature. Retirement Benefit Income Tax; Optional
7
State of Michigan. FAQs for Public Act 4 of 2023 – Retirement State Tax Changes
8
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
State of Michigan. Am I Required to Make Estimated Tax Payments?
11
State of Michigan. 4884 Instructions 2024 – Pension Schedule
12
State of Michigan. 2025 Michigan Individual Income Tax MI-1040 Instructions