Residents of Michigan with public pensions and other specific retirement accounts may soon enjoy new tax breaks under a bill approved by the state Senate on Thursday, and the House has approved a competing plan with significant differences.
The Senate bill was approved by a vote of 23-15, with three Republicans joining the 20 Senate Democrats in support. The House bill was approved 67-41. The concept at the heart of both legislation is central to Gov. Gretchen Whitmer’s legislative agenda.
New Tax Breaks For Michigan Residents
Republicans opposed to the bill, on the other hand, have the ability to prevent whichever version passes from taking effect immediately. They argued that the policies do not aid enough Michigan elders and that they should be expanded to include more retirees.
The Senate bill reinstates a tax exemption for public pensions that were repealed by then-Gov. Snyder, Rick. However, it also introduces new deductions for other types of retirement plans, such as 401ks, IRAs, and annuities.
State income tax would not apply to public pensions. The measure provides for limited exemptions on profits from other pension and retirement accounts of up to $56,961 for single taxpayers and $133,922 for joint filers.
The House passed a drastically different version of a plan to exempt pensions and other forms of income from taxation. The proposal is being phased in over four years, with older seniors having access to bigger deductions through a tiered structure split by age.
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When To Expect Payments?
Democrats point out that the Senate supports those with public pensions, particularly those who had them prior to the 2011 change and expected them to stay tax-free. These pensions are available for a wide range of vocations, from firefighters and police officers to local administrations and superintendents.
According to a Senate Fiscal Analysis of the original Senate measure, the lost tax income would likely exceed $500 million per year with full implementation. The original House bill’s fiscal analysis predicted lost tax revenue at $450 million per year after full implementation.
To become law, either chamber’s version of the bill would need to be adopted by the opposing chamber and signed by Whitmer.
Either version might be barred from taking immediate effect by the Senate, which requires two-thirds of senators to support granting any bill immediate effect. Initially, the Senate bill did not pass by such a large majority. If that margin holds, the measure will likely go into force in early 2024.
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