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Retirement and Pension Benefits
Retirement and Pension Benefits
What are Qualifying Retirement and Pension Benefits?
Retirement and pension benefits include most income that is reported on Form 1099-R for federal tax purposes. This includes defined benefit pensions, IRA distributions, and most payments from defined contribution plans.
Generally, deferred compensation income is not included in the definition of retirement and pension benefits and therefore, does not qualify for special tax treatment.
Treasury uses the terms “retirement” and “pension” interchangeably unless addressing a specific situation applicable only to one type of income.
What is and isn't Taxable?
Adjusted Gross Income (AGI) is calculated on your federal income tax return and is the starting point for your Michigan individual income tax return and may include your retirement or pension benefit distribution. AIG is the starting point for the individual income tax return. From there, taxable and nontaxable items are added and/or subtracted from AGI to determine your Michigan taxable income.
MCL 206.30(9),(10), and (11) provides guidance on the retirement benefit subtraction. To determine your allowable retirement or pension subtraction, we must consider (1) if your retirement income is considered a qualified distribution and (2) what your tax treatment options are for a given tax year.
MCL 206.30(9),(10), and (11) provides guidance on the retirement benefit subtraction. To determine your allowable retirement or pension subtraction, we must consider (1) if your retirement income is considered a qualified distribution and (2) what your tax treatment options are for a given tax year.
What is a Retirement and Pension Subtraction?
It is a subtraction of all eligible retirement income from your Michigan taxable income.