Does Michigan Tax Social Security or Pensions?

Michigan does not tax Social Security, and its four-year phase-in of the retirement and pension subtraction is finished. Beginning with tax year 2026, whatever year you were born, you can subtract your retirement and pension benefits up to $67,610 on a single or married-filing-separate return and $135,220 on a joint return.1 If you're retired in Michigan and living on a pension, IRA, or 401(k), the news is mostly good.

There is a second route worth knowing about, because for some retirees it is the better one: a taxpayer born after 1945 who has reached 67 can instead elect a standard deduction of $20,000 single or $40,000 joint against every kind of income.1 This guide covers both, the phase-in years behind them, and what you still owe.

In This Guide

• Does Michigan Tax Social Security or Pensions?
• Michigan Retirement Income Tax at a Glance
• How Michigan Taxes Retirement Income
• The Four-Year Phase-In
• What You Still Pay in Michigan
• Frequently Asked Questions
• Next Steps

Does Michigan Tax Social Security or Pensions?

Michigan doesn't tax Social Security, and for tax year 2026 it has finished phasing its pension and retirement-income subtraction back in.1

The change comes from the Lowering MI Costs plan, Public Act 4 of 2023. It restores a retirement and pension income subtraction that essentially returns Michigan to its more generous pre-2012 treatment, phased in over four years.1 For tax year 2026 the phase-in is complete: regardless of the year you were born, you can subtract retirement and pension benefits up to $67,610 single or married filing separately, and $135,220 filing jointly.1

Whatever income remains taxable after the subtraction is taxed at Michigan's flat rate of 4.25 percent.1

Michigan Retirement Income Tax at a Glance

Here's how each common income source is treated at the state level for tax year 2026, for a taxpayer who elects the retirement subtraction.

The dollar caps on the subtraction are adjusted for inflation each year, so use the figure for the year you are filing. For tax year 2026 it is $67,610 for single and married-filing-separate filers and $135,220 for joint filers.1 Confirm it on Michigan Form 4884 when you file.

How Michigan Taxes Retirement Income

Michigan starts with your income, exempts Social Security entirely, then lets you subtract eligible retirement income under the phase-in. Whatever is left is taxed at the flat 4.25 percent rate.1

Eligible retirement income covers defined-benefit pensions, IRA distributions, and most defined-contribution plan payments reported on a Form 1099-R, up to an inflation-adjusted dollar limit.1 Because that cap moves each year, the Michigan Department of Treasury sets the exact figure on Form 4884, the pension schedule. Don't rely on last year's number.

For tax year 2026, the cap on combined public and private benefits is $67,610 for single and married-filing-separate filers and $135,220 for joint filers, and year of birth no longer restricts who can claim it.1 A retiree whose pension and retirement-account income falls under the cap may owe no Michigan tax on it at all. Income above the cap is taxed at 4.25 percent.

Two groups are not held to that combined cap. Since tax year 2023, a person receiving retirement benefits for service as a public police or fire department employee, a state police trooper or sergeant, a county corrections officer, or a federal employee whose work was substantially similar may elect to deduct those public retirement benefits with no additional limitation.1 And a taxpayer born before 1946 faces no additional restriction either: public pension and retirement benefits are not taxed at all, and private benefits may be subtracted up to the full maximum.1

The Standard Deduction Route, and Why It Sometimes Wins

These routes are elective, and the retirement subtraction is not automatically the best one. A taxpayer born after 1945 who has reached age 67, or whose older spouse has on a joint return, may instead elect a standard deduction of $20,000 on a single return or $40,000 on a joint return, against all types of income rather than retirement income alone.1

That matters for a specific reader: someone who is 67 with a small pension but substantial other income, from wages, interest, dividends, capital gains or rental property. The retirement subtraction can only reach retirement money, so a small pension yields a small subtraction no matter how high the cap is. The standard deduction reaches the whole picture.

For tax years 2026 through 2028, a taxpayer born after 1952 who has reached 67 can subtract Social Security income and take a full standard deduction, giving up the personal exemption.1 Before you file, check what the standard deduction is actually worth on your own return against Michigan's Revenue Administrative Bulletin 2026-1 and the current Form 4884 instructions.

You elect one route or the other, not both, so run the arithmetic both ways, or have your preparer do it, before you file.

The Four-Year Phase-In

The phase-in is the part that confuses people, because the rules differed each year as it ramped up, and each percentage step reached only a band of birth years. Here's the schedule.

That's the core of Public Act 4 of 2023. Each year a larger share of eligible retirement income came out of taxable income, until the birth-year bands drop away entirely for tax year 2026.1

Two groups were never subject to those percentage caps at all. A taxpayer born before 1946 faces no additional restriction: public pension and retirement benefits are not taxed, and private benefits may be subtracted up to the full maximum.1 And since tax year 2023, police, fire, state police and county corrections retirees, plus federal employees whose service was substantially similar, may elect to deduct their public retirement benefits with no additional limitation.1 If you are in either group and someone told you that you were capped at 75 percent for 2025, that was wrong.

The share applies to an inflation-adjusted dollar limit, not to unlimited income. For tax year 2025, that private-retirement maximum was $65,897 for single and married-filing-separate filers and $131,794 for joint filers; for tax year 2026 it is $67,610 and $135,220.1 Those figures adjust each year, so confirm the current limit on Form 4884 before you file.

Michigan also lets a retiree choose between the retirement subtraction and the standard deduction described above, whichever gives the better result. If you're filing for an earlier year or amending, this choice can matter, so check Form 4884 or ask your preparer which method applies to you. For most filers the retirement subtraction has a dollar cap, so even now that birth year no longer restricts it, a very large pension may have a taxable portion above the limit.1

What You Still Pay in Michigan

The retirement subtraction handles the state income tax. Other taxes remain.

Federal income tax. The IRS taxes pension income, traditional IRA and 401(k) withdrawals, and often part of Social Security benefits, regardless of Michigan's subtraction.

Flat state tax on income above the cap. If your eligible retirement income exceeds the subtraction limit, the excess is taxed at 4.25 percent.1 Other taxable income, such as significant investment gains, is also taxed at that flat rate.

Property and sales tax. Michigan property taxes are set locally, and the state also levies a statewide sales tax. The state runs a Homestead Property Tax Credit that helps lower-income and senior homeowners and renters. See our senior property tax relief guide for how Michigan's Homestead Property Tax Credit works.

For families weighing how retirement income covers care, start with our guide on how to pay for senior care, our framework for building a senior care funding plan, and our overview of retirement accounts for care.

Next Steps

• Pull the current Form 4884 to confirm this year's subtraction limit before you file, since the cap adjusts for inflation annually. For 2026 it is $67,610 single and $135,220 joint.1
• Run both routes before you file. Compare the retirement subtraction against the standard deduction for a taxpayer born after 1945 who has reached 67 ($20,000 single or $40,000 joint), and elect the one that leaves less income taxable.1
• If you own a home, see whether you qualify for Michigan's Homestead Property Tax Credit.
• Map income against care costs. Read our guide to paying for senior care and retirement accounts for care.

Learn More

Find personalized help planning retirement income for senior care at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.