You’ve probably heard the buzz around the coffee shop or seen the headlines: the "pension tax" in Michigan is finally going away. But if you’re looking at your bank account and wondering why you’re still seeing state tax withheld from your checks, you aren't alone. Honestly, it's kinda confusing.
The short answer is that the Michigan pension tax repeal is happening right now, but it isn't an "all-at-once" type of deal. We are currently in the middle of a multi-year phase-in that started back in 2023. By the time we hit the 2026 tax year, the "repeal" basically reaches its full strength.
The Great 2011 "Tax Grab" and Why It's Dying
To understand when it ends, you have to remember how we got here. Back in 2011, under Governor Rick Snyder, Michigan fundamentally changed how it taxed retirees. It created a "three-tier" system based on your birth year. If you were born after 1952, you essentially got hit the hardest, losing most of the exemptions that older retirees enjoyed.
Governor Gretchen Whitmer signed the Lowering MI Costs Plan (Public Act 4 of 2023) to roll that back. The goal? To return Michigan to the pre-2012 rules where most public and private retirement income was either fully or significantly exempt.
When will Michigan pension tax be repealed for good?
The "full" repeal is officially scheduled for the 2026 tax year.
However, "repeal" is a bit of a loose term. It’s actually a massive expansion of what you can deduct. Instead of the state just not taxing you, you get to claim a huge deduction that, for most people, wipes out their state tax bill entirely.
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Here is how the phase-in actually looks for the next few months:
- Tax Year 2025 (Right now): If you were born between 1946 and 1966, you can deduct 75% of the maximum allowable amount. For single filers, that’s roughly $46,138. For joint filers, it's a whopping $92,277.
- Tax Year 2026: This is the finish line. Every retiree, regardless of birth year (even those born after 1967), becomes eligible for the 100% deduction.
Wait, there's a catch. You have to actually choose the new plan when you file. The Michigan Department of Treasury allows you to pick between the "new" 2023 law or the "old" three-tier system. Most people will save way more under the new law, but the state won't just do the math for you automatically—you’ve gotta select it on your return.
Public Safety: The Exception to the Rule
If you were a police officer, firefighter, or state trooper, the rules are already different for you. Since the 2023 tax year, retired public safety officers have been able to deduct their benefits without a cap. No phase-in. No waiting until 2026. If that's you, you should have already been seeing that relief.
Why your 1099-R might still look "wrong"
It’s January 2026. You just got your 1099-R and—surprise—they still took out Michigan taxes. Why?
Basically, pension administrators like MERS (Municipal Employees’ Retirement System) don't automatically know your specific tax situation. They often default to withholding based on old rules unless you tell them otherwise. MERS actually sent out notices in early 2026 telling folks to update their withholding elections. If you didn't, they might still be sending your money to Lansing every month, even if you won't owe it at the end of the year.
You'll get that money back as a refund when you file your 2026 taxes in early 2027, but who wants to give the government an interest-free loan?
Don't forget the "Surviving Spouse" rule
This is a detail people often miss. If your spouse was older and passed away, you can often claim the deduction based on their birth year, provided you haven't remarried. This is huge for younger widows or widowers who might otherwise have to wait years to hit the "Tier 1" or "Full 2026" status.
Your 2026 Checklist
The "pension tax" isn't a ghost yet, but it's fading. To make sure you actually keep your money this year:
- Check your withholding: Log into your retirement portal (like ORS or MERS) and adjust your Michigan tax withholding. With the 2026 deduction limits expected to be at least $65,987 for singles and $131,794 for couples, most Michiganders can set their state withholding to zero.
- Gather your 1099-Rs: Make sure they are from "qualified" plans. Most IRAs, 401(k)s, and traditional pensions count, but some weird non-qualified deferred comp plans might not.
- Talk to a pro: Michigan's tax forms are notoriously clunky. When you file your 2025 taxes (this spring) and your 2026 taxes (next year), make sure your preparer is using the "Lowering MI Costs" deduction rather than the old tier system.
The "repeal" is a process, not a light switch. By 2026, the era of the 2011 pension tax is effectively over for everyone in the Great Lakes State.
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Next Steps for Michigan Retirees:
- Immediate Action: Review your most recent pension pay stub. If "MI State Tax" is still being deducted, visit your pension provider's website to update your MI W-4P.
- Strategic Move: If you are planning a large 401(k) or IRA withdrawal, consider timing it for after January 1, 2026, to take advantage of the 100% deduction phase.
- Verification: Visit the Michigan Department of Treasury website and search for "Revenue Administrative Bulletin 2026-1" to see the exact inflation-adjusted deduction limits for this year.