Michigan does not tax Social Security benefits, but it does tax most pension income

Michigan has one of the most favorable tax climates for retirees in the country, but the rules differ sharply between Social Security and pensions. Social Security income is completely exempt from Michigan state income tax — you will not owe state tax on those benefits no matter how much you receive. Pension income, however, is taxed as ordinary income at Michigan's flat rate of 4.25 percent, with a narrow exception for military pensions.

This distinction matters because many retirees receive both sources of income. Understanding which parts of your retirement are taxed and which are not helps you plan your overall tax burden and avoid surprises when you file your state return.

Key Takeaways

  • Social Security benefits are not taxed by Michigan, regardless of how much you receive or what other income you have.
  • Pensions from private employers and government jobs (except military service) are taxed at Michigan's 4.25 percent flat income tax rate.
  • Military pensions are fully exempt from Michigan income tax if you served on active duty.
  • You must still file a Michigan tax return if your total income exceeds the filing threshold, even if most of it is untaxed Social Security.

How Social Security is treated on your Michigan return

Michigan excludes all Social Security income from state taxation. This applies to retirement benefits, survivor benefits, and disability benefits paid by Social Security. You do not report these amounts on your Michigan tax return, and they do not count toward your Michigan taxable income.

This exemption exists regardless of your total income level. Even if you have substantial pension income, investment income, or other earnings, your Social Security benefits remain untaxed by the state. You will still receive a Social Security statement (Form SSA-1099) showing what you received, but you can disregard it for Michigan state tax purposes.

Federal tax treatment is separate. While Michigan does not tax Social Security, the federal government may tax part of your benefits depending on your combined income (Social Security plus half of any other income). That federal tax is not Michigan's concern, but it is worth understanding for your overall tax picture.

Pension income and the 4.25 percent tax rate

Pensions from employers — whether private companies, state universities, school districts, or local governments — are subject to Michigan income tax. The state taxes them at its flat rate of 4.25 percent, applied to the full amount of your pension payment each year.

This includes defined-benefit pensions (monthly payments for life based on years of service) and distributions from defined-contribution plans like 403(b)s and 457(b)s. If you receive a lump-sum pension payout, the entire amount is taxable in the year you receive it. If you receive monthly pension checks, each payment is taxable in the year paid.

The tax is withheld by your pension provider if you request it, or you can pay estimated taxes quarterly if you prefer. Many retirees choose to have taxes withheld directly from their pension checks to avoid a large bill at tax time.

The military pension exemption

Michigan offers a complete exemption for military pensions. If you retired from active duty in the U.S. Armed Forces and receive a pension from the Department of Defense, that income is not taxed by Michigan.

This exemption applies only to pensions earned through active military service. It does not cover pensions from the Veterans Health Administration, the Department of Veterans Affairs, or other veteran-related payments. You must have served on active duty and be receiving a military retirement pension to claim this exemption.

To claim the exemption, you report the military pension on your Michigan return but mark it as exempt. Your pension provider should issue a statement showing the amount, and you can reference that when you file.

Filing requirements when you have mixed income sources

You must file a Michigan tax return if your total income exceeds the filing threshold for your age and filing status. The threshold varies by year and is higher for people age 65 and older. For 2024, a single person age 65 or older must file if their gross income exceeds $16,650; a married couple filing jointly where at least one spouse is 65 or older must file if their income exceeds $21,150.

This threshold applies to your total income, including taxable pensions, investment income, and other earnings — but not Social Security. So if you have $10,000 in Social Security and $8,000 in pension income, your filing threshold is based on the $8,000, not the $18,000 total.

Even if you do not owe tax, filing may be worthwhile if you have taxes withheld from your pension. You would file to claim a refund of the overpayment. Check the current year's threshold with the Michigan Department of Treasury or a tax preparer to confirm whether you must file.

How to report these income sources on your Michigan return

Social Security income does not appear on your Michigan return at all. You do not need to report it, and it does not affect your calculations.

Pension income goes on your Michigan return as taxable income. You will receive a Form 1099-R from your pension provider showing the amount distributed. Report this on the appropriate line of your Michigan return (usually the pension and annuity income line). If you have multiple pensions, add them together and report the total.

Military pensions are reported separately and marked as exempt. Your pension provider should indicate on the Form 1099-R whether the payment is military retirement income. If it is not clearly marked, contact the provider and ask them to clarify, or note it yourself when you file.

If you use tax software or a preparer, tell them upfront that you receive Social Security (so they do not accidentally include it) and that you may have military or other exempt pensions. This prevents errors and ensures you pay only what you owe.

Frequently Asked Questions

Do I have to pay federal tax on my Social Security even though Michigan does not tax it?

Federal tax on Social Security is separate from Michigan tax. The federal government may tax part of your benefits if your combined income (Social Security plus half of other income) exceeds certain thresholds. Michigan's exemption does not affect federal tax. You may owe federal tax, state tax, both, or neither depending on your specific situation.

What if I moved to Michigan after retiring with a pension from another state?

Michigan taxes pensions based on when you receive the payment, not where you earned it. If you receive a pension from a former employer in another state, Michigan taxes that pension income at 4.25 percent. The state where you earned the pension does not matter. Some states offer pension exemptions for their own residents; Michigan does not.

Are distributions from my IRA or 401(k) taxed differently than pensions?

Distributions from IRAs, 401(k)s, and similar retirement accounts are taxed by Michigan as ordinary income at 4.25 percent. They are treated the same as pension income. The only difference is that Social Security is exempt and military pensions are exempt — everything else counts as taxable income.

If I have no Michigan income tax owed, do I still need to file?

You must file if your gross income exceeds the filing threshold for your age and status, even if no tax is owed. However, if your income is below the threshold, you do not have to file. If you had taxes withheld from your pension and your income is below the threshold, you may still want to file to claim a refund.