Michigan does not tax most pension income, but the rules depend on your age and the type of pension you receive

Michigan has a pension exemption that excludes most retirement income from state income tax. If you receive a pension from a public employer (like a city, county, school district, or state agency) or from the federal government, that income is not taxed by Michigan. Private pensions and annuities follow different rules based on when you were born.

The key distinction is your birth date. If you were born before 1946, Michigan exempts all your pension and annuity income from state tax. If you were born in 1946 or later, only pensions from public employers and the federal government are exempt — private pensions and annuities are taxable.

Social Security benefits are not taxed by Michigan under any circumstance. Distributions from IRAs and 401(k) plans are taxed as regular income, regardless of your age or the source of the original contributions.

Key Takeaways

  • Public pensions (from government employers) and federal pensions are exempt from Michigan income tax for all retirees, regardless of birth year.
  • Private pensions and annuities are exempt only if you were born before 1946; those born in 1946 or later must pay Michigan income tax on private pension income.
  • Social Security is never taxed by Michigan, but IRA and 401(k) withdrawals are taxed as ordinary income.
  • You do not need to file a separate form to claim the pension exemption — you report it on your Michigan tax return by excluding the exempt income from your taxable total.

Public Pensions and Federal Pensions Are Always Exempt

If your pension comes from a Michigan city, county, school district, state agency, or the federal government, that income is exempt from Michigan income tax. This applies to all retirees, regardless of age. The exemption covers the full pension amount you receive each month.

This includes pensions from the Michigan Public School Employees' Retirement System (MPSERS), the Michigan Employees' Retirement System (MERS), the State Police Retirement System, and any local government pension plan. Federal pensions — including those from the U.S. military, the U.S. Postal Service, and federal civilian employment — are also fully exempt.

You do not need to take any action to receive this exemption. When you file your Michigan tax return, you simply exclude the pension income from your taxable income. The pension payer (your former employer or the federal government) will send you a 1099-R form showing the distribution, but you will not owe Michigan tax on it.

Private Pensions and Annuities: The Birth Year Rule

Private pensions — those from private employers, private annuities, and some union pensions — are treated differently depending on when you were born. This is the most common source of confusion for Michigan retirees.

If you were born before January 1, 1946, your private pension and annuity income is fully exempt from Michigan income tax. If you were born on or after January 1, 1946, private pensions and annuities are taxable income in Michigan. There is no partial exemption or phase-out; the cutoff is based on your birth date alone.

This rule applies only to income you receive as a pension or annuity payment. It does not affect lump-sum distributions from a pension plan, which are taxed as ordinary income regardless of your birth year.

Social Security, IRAs, and 401(k) Withdrawals

Social Security benefits are never taxed by Michigan, regardless of your age or total income. This is true even if you also receive pensions or other retirement income. You do not report Social Security on your Michigan tax return.

IRA distributions and 401(k) withdrawals are taxed as ordinary income by Michigan. The source of the money (your own contributions, employer contributions, or investment gains) does not matter. If you were born before 1946 and receive a private pension, that pension may be exempt, but your IRA and 401(k) withdrawals will still be taxed.

If you are under 59½ and withdraw money from an IRA or 401(k), you will owe both federal and Michigan income tax on the withdrawal, plus a 10% federal penalty (with limited exceptions). Michigan does not have a separate early-withdrawal penalty.

How to Report Pension Income on Your Michigan Tax Return

You report pension income on Michigan Form MI-1040, the state income tax return. The form asks you to list all income sources, including pensions, and then to subtract any exempt income.

For exempt pensions (public pensions for all ages, or private pensions if you were born before 1946), you will receive a 1099-R from the pension payer. You report the full amount on the form, then subtract it as an exemption. The result is that no Michigan tax is owed on that income.

For taxable pensions (private pensions if you were born in 1946 or later), you report the full amount and pay tax on it. For Social Security, you do not report it at all on the Michigan return. For IRAs and 401(k)s, you report the full withdrawal amount as taxable income.

If you are unsure whether your pension is public or private, check the name of the employer on your 1099-R or pension statement. Employers with "State of Michigan," "City of," "County of," "School District," or "Public" in the name are public employers. Private companies and private annuity providers are private sources.

What Happens If You Move Out of Michigan

If you move to another state, Michigan will no longer tax your income, but your new state may. Some states (like Florida, Texas, and Tennessee) do not tax pensions at all. Others tax all pensions regardless of source. A few states have rules similar to Michigan's, exempting public pensions but taxing private ones.

You are required to file a Michigan tax return only if you earned Michigan-source income during the year or if you had Michigan tax withheld from your pension. Once you establish residency in another state and no longer receive Michigan-source income, you stop filing Michigan returns.

If you are considering moving in retirement, the tax treatment of your specific pension in your new state is worth researching before you relocate. The difference can be significant over many years of retirement.

Frequently Asked Questions

I was born in 1945 and receive a private pension. Is it taxed by Michigan?

No. You were born before January 1, 1946, so your private pension is exempt from Michigan income tax. You report it on your return but subtract it as an exemption, resulting in no tax owed on that income.

I was born in 1946 and receive a private pension. Do I have to pay Michigan tax on it?

Yes. You were born on or after January 1, 1946, so private pensions are taxable income for you in Michigan. Public pensions (from government employers) are still exempt, but private pensions are not.

Is my military pension taxed by Michigan?

No. Military pensions are federal pensions and are fully exempt from Michigan income tax, regardless of your age or birth year.

If I receive both a public pension and Social Security, do I pay Michigan tax on either one?

No. Both public pensions and Social Security are exempt from Michigan income tax. You do not owe Michigan tax on either income source.

I withdrew money from my 401(k) last year. Is that taxed by Michigan?

Yes. 401(k) withdrawals are taxed as ordinary income by Michigan, regardless of your age or whether you also receive an exempt pension. The withdrawal is reported on your Michigan return and is subject to state income tax.