April 9, 2023
The frantic pace of the new Democratic trifecta was relieved by a two-week spring break from March 24 to April 10. In the first three months of the 102nd Legislature, they were able to pass all six first-day bills and more.
Retirement Tax Relief — For retirees, the most important issue was figuring out the exact personal impact of pension tax reform. House Bill 4001, now Public Act 4 of 2023, was sponsored by State Representative Angela Witwer (D-Delta Township). It amends the Income Tax Act to phase out the retirement tax over four years and ultimately deliver an average of $1,000 to 500,000 households. The bill also equalizes the exemption on both public and private pensions. Those born in 1945 and before will continue to have a tax-exempt public pension; only your private retirement income is affected by the maximum deduction amount each year.
The revised law, like current law, is organized by birth year. By tax year 2026 (filed in 2027) all tax filers, whether having public or private retirement income, will receive up to 100 percent of the maximum amount allowed. The maximum amount is adjusted annually by the Consumer Price Index to reflect inflation and announced each January. In tax year 2023, the maximum amount is $61,518 for a single filer and $123,036 for those married and filing jointly.
As the retirement tax rolls through the birth year groups over the next few years, you may need to change your tax withholding.
No Immediate Effect — The bill did not receive any Republican votes for immediate effect for tax year 2022 so it will not be effective until 90 days after the final adjournment of the current legislative session. There is talk of adjourning in early November, but the usual adjournment is in late December for an effective date ranging from early January through late March.
This issue is especially important for those born from 1953 through 1958 because it affects when in 2024 you should file your 2023 tax return to get the full benefit of the retirement tax relief eligibility without having to file an amended tax return. As it turns out, those born in 1946 – 1952 should take the optional $20,000/$40,000 deduction in current law because it is higher than the allowable 25 percent of the allowable deduction amount of $15,379.50/$30,759 in Public Act 4.
The Michigan Department of Treasury has issued a special bulletin on Retirement Tax Information available at www.michigan.gov/taxes/iit/retirement-and-pension-benefits. The Office of Retirement Services (ORS) issued its own explanation at www.michigan.gov/orsstatedb.
The easiest explanation of your personal retirement tax liability can be found in the following table issued by ORS.
Tax reduction for All — On top of the retirement tax relief, every taxpayer will get the benefit of a one-year tax rate reduction from the current 4.25 percent to 4.05 percent in tax year 2023 according to Attorney General (AG) Opinion No. 7320 issued March 23, 2023. It interprets a law passed in 2015 that backers say was supposed to be a permanent tax decrease. Expect lawsuits challenging the AG Opinion.
$300 CAP ON DEFINED BENEFIT COLA UPDATE
Michigan SERA has asked Sen. Sarah Anthony (D-Lansing) to re-introduce Senate Bill (SB) 775 of 2021 sponsored by then-Senator Curtis Hertel. Sen. Anthony is chair of the Senate Appropriations Committee. As written, the bill would eliminate the $300 cap on annual increases for defined benefit State retirees and leave intact the language giving State defined benefit retirees a 3 percent annual increase based on a retiree’s base income (cumulative, not compounded) on the date of retirement. The $300 cap has been in place since 1987 and should have been indexed to inflation at the time but was not. There has been a cumulative price increase of 167 percent since 1987, and over 80 percent of State defined benefit retirees have hit the cap of $25 per month.
Write or call Sen. Anthony requesting that she sponsor re-introduction of SB 775 of 2021 and advocate for its passage. She can be reached at:
First-Day Bills — In the first 100 days of the 102nd Legislature, the Democratic trifecta has repealed the retirement tax; quintupled the Earned Income Tax Credit for working low-income taxpayers; repealed the 1931 laws criminalizing abortion in Michigan; added civil rights protections based on sexual orientation and gender identity or expression; repealed laws passed in 2012 that prohibited mandatory union dues or service fees; and restored prevailing wage laws abolished in 2018. Additionally they have abolished the mandatory 3rd-grade retention provision if the student didn’t pass a reading test.
Gun Safety Bills — The MSU shooting tragedy on February 13 caused Dems to run their 11-bill gun safety package earlier than planned – House Bills 4138 through 4118 and Senate Bills 76 through 86 were introduced in late February. The bills to require universal background checks and bills to require safe storage requirements to help prevent a child’s access to guns have passed both chambers and await the Governor’s signature. Bills to permit extreme risk protection orders (also called Red-flag laws) that would allow someone to petition a judge to have a person’s firearms confiscated, at least temporarily, if that person is a danger to themselves or others has had hearings and is still being tweaked. Meanwhile, the Michigan Court of Appeals recently held that the parents of the Oxford School shooter can be charged.
Public Corruption Exposed — Former House Speaker Rick Johnson, under federal investigation since 2017, pled guilty to taking bribes to influence award of State licenses from the Medical Marijuana Licensing Board, which he chaired. He agreed to returning $110,000, pay fines, and share his inside information on who else might have broken the law. Two lobbyists and a fourth participant have also agreed to a plea deal, admitting their guilt in the scheme. The maximum prison term under the charge Mr. Johnson faces is ten years, three years of supervised release, and a fine of $250,000. It is the largest public corruption scandal to hit State government in 30 years.
Preventive Health Protected — You may have heard that a Texas federal judge decided to strike down the preventive health coverage without cost to the patient requirements under the Affordable Care Act (Obamacare). Michigan’s health insurers have agreed to continue the coverage while the decision is appealed. In Michigan, 2.1 million would be affected if the federal judge’s decision is upheld. Preventive health coverage under the State of Michigan retiree health plan is not affected.
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