Does Michigan Tax Social Security or Pensions?

Michigan does not tax Social Security, and it's phasing out tax on pensions and other retirement income through 2026. The Lowering MI Costs plan restores a generous retirement subtraction, reaching 100 percent for tax year 2026.1 If you're retired in Michigan and living on a pension, IRA, or 401(k), the news is mostly good.

This guide covers how Michigan retirement income tax works, the four-year phase-in, 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 it's in the middle of phasing out tax on pensions and other retirement income.

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, eligible retirees can subtract 100 percent of qualifying retirement income, up to inflation-adjusted limits.

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.

The dollar caps on the subtraction change every year with inflation, so the table shows the treatment, not a fixed exempt amount.1 Confirm the current limits 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 pensions, IRA withdrawals, and 401(k) distributions, up to inflation-adjusted dollar limits.1 Because those caps move each year, the Michigan Department of Treasury sets the exact figures on Form 4884, the pension schedule. Don't rely on last year's number. Pull the current Form 4884 instructions, or have your preparer do it, before you file.

For tax year 2026, the subtraction reaches 100 percent of eligible retirement income within the limits.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.

The Four-Year Phase-In

The phase-in is the part that confuses people, because the rules differed each year as it ramped up. Here's the schedule.

That's the core of Public Act 4 of 2023. Each year, a larger share of eligible retirement income comes out of your taxable income, until the full 100 percent subtraction lands for tax year 2026.1

The share applies to an inflation-adjusted dollar limit, not to unlimited income. For tax year 2025, that private-pension limit was $65,897 for single and married-filing-separate filers and $131,794 for joint filers, and the 75 percent phase-in step made $49,423 (single) and $98,846 (joint) subtractable.1 Those figures adjust each year, so confirm the current limit on Form 4884 before you file.

During the phase-in years, Michigan also let some retirees choose between the new subtraction and older pension rules, depending on birth year, whichever gave 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. The subtraction always has a dollar cap, so even at 100 percent, very large pensions may have a taxable portion above the limit.

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 eligible-retirement-income cap adjusts for inflation annually.1
• If you're amending an older return, check whether the new subtraction or the older pension rules give you the better result.
• 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.