If you live in Michigan, you generally have to file a Michigan state income tax return if your federal adjusted gross income is more than the Michigan personal exemption amount ($3,600 per exemption for 2009). You may also have to file a Michigan return if you are not a resident but have income from Michigan sources. The same return, MI-1040, is used by residents, part-year residents and nonresidents.
Part-year residents and nonresidents have to file Schedule NR to allocate their income between Michigan and other states. Michigan has reciprocal tax agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin, and Michigan residents pay only Michigan income taxes on the salaries and wages they earn when working in any of those states. You can file a withholding form with your employer to claim exemption from that state’s withholding tax.
The Michigan state income tax is a flat 4.35% on taxable income. Your Michigan taxable income is your federal adjusted gross income plus and minus certain items that are treated differently in Michigan, and minus your personal exemptions. There are also credits you can claim on your Michigan return that directly reduce your state income tax.
Michigan exemptions
You can claim a $3,600 deduction for each personal exemption on your Michigan return. There is an additional $2,300 exemption for each individual who is 65 or older or who is deaf, blind, hemiplegic, paraplegic, quadriplegic, or totally and permanently disabled. You can claim an additional $600 exemption for each dependent child under age 18.
Veterans with a service-related disability and taxpayers who have a dependent with a service-related disability can claim an additional $300 exemption. If your unemployment compensation is 50% or more of your adjusted gross income, you can claim a $2,300 exemption. This is without considering the $2,400 of unemployment compensation that can be excluded from your income.
Michigan deductions
There are various deductions you may be able to claim on Schedule 1 of your Michigan return.
If you included interest income from U.S. government obligations, such as Series EE bonds and Treasury notes, on your federal return, you can deduct that amount on your Michigan return.
Any compensation you received for active duty in the U.S. Armed Forces that is included in your federal adjusted gross income can be deducted on your Michigan return.
Income attributable to another state that is included in your federal adjusted gross income can be deducted on your Michigan return. If you have business income that is subject to tax in Michigan and another state you must apportion the income on Form MI-1040H. If you have capital gains from the sale of real or personal property outside Michigan you must file Form MI-1040D.
You can deduct up to $45,120 of pension benefits you received from a private pension system or an IRA if those benefits were included in your adjusted gross income. Married taxpayers filing jointly can deduct up to $90,240. You can deduct all the pension benefits included in your adjusted gross income that you received from the State of Michigan, Michigan local governments, Tier 2 railroad retirement, federal civil service, and military retirement.
If you are 65 or older you can deduct up to $10,058 in interest, dividends and capital gains. Married taxpayers filing jointly can deduct up to $20,115. The amount that can be deducted must be reduced by the amount that is deducted for pension benefits.
If you had to include any Social Security or Tier 1 railroad benefits in your federal adjusted gross income you can deduct that amount on your Michigan return.
If you live for at least 183 consecutive days in one of the areas in Michigan that have been designated a Renaissance Zone you can deduct the income you earned and the interest and dividends you received while living in the zone. You can deduct the capital gains you received based on the percentage of time you owned the asset while living in the renaissance zone. And you can deduct any lottery winnings you received and included in your taxable income after you became a resident of the zone.
If you included a Michigan state income tax refund as income on your federal tax return because you previously claimed an itemized deduction for state income tax, you can deduct that amount on your Michigan return.
You can deduct up to $5,000 of contributions to a Michigan Education Savings Program account. Married taxpayers filing jointly can deduct up to $10,000. Contributions to other education savings accounts are not deductible. If you purchased a Michigan Education Trust contract during the year, you can deduct the entire contract amount. If you had payroll deductions or made monthly payments you can deduct the amount you actually paid.
If you made contributions to a national or Michigan political party or candidate, you can deduct up to $50 if you file as single and up to $100 if you and your spouse file jointly.
If you received benefits from a self-insured medical expense reimbursement plan and you had to include those benefits in your federal adjusted gross income, you can deduct those benefits on your Michigan return.
Any prizes you won in a Michigan bingo, raffle or charity game that are included in your federal adjusted gross income can be deducted on your Michigan return.
If you claimed the credit for the elderly or disabled on your federal return, on your Michigan return you can deduct the amount you used to determine that credit.
If you took a distribution from an individual retirement account and used the money to pay for higher education expenses such as tuition, fees and books, you can deduct that amount on your Michigan return.
If you took a distribution from a pension or retirement plan and contributed that amount to a charitable organization within 60 days, you can claim a deduction. The amount of the deduction has to be reduced by the deduction you claim for pension income and two times the amount you claim as a credit for a public contribution to a homeless shelter or food bank, and any community foundation credit you claim.
Michigan credits
You can claim a partial credit for any income tax you paid to a city in Michigan. There is a worksheet in the instructions for Form MI-1040 to calculate your credit.
If you claim the federal earned income credit you can claim 20% of that amount as the Michigan earned income credit.
If you contribute to a reserve fund of a fiduciary organization in accordance with the Individual or Family Development Account Program Act you can claim a credit for 75% of your certified contributions.
You can claim a credit up to $100, or $200 on a joint return, for donations to a Michigan college or university, the State Art in Public Places Fund, the Michigan Historical Museum, Michigan public libraries and public broadcasting stations, a Michigan municipality art institution, the State of Michigan for the preservation of State archives, or an endowment fund of a certified community foundation.
You can claim a credit up to $100, or $200 on a joint return for donations to a homeless shelter, food bank, food kitchen, or similar organizations. Contributions made through the United Way qualify for this credit, but donations to second-hand stores and churches do not qualify.
If you rehabilitated historic resources in Michigan, you may qualify for the Michigan Historic Preservation Tax Credit. You have to file Form 3581 to claim this credit.
If you paid income tax to a government entity outside Michigan on income that is included on your Michigan return, you can claim a credit for those taxes. You must attach a copy of the income tax return you filed with the government entity outside Michigan.
If you paid tuition and fees for a student to attend a college or university in Michigan and your adjusted gross income is not more than $200,000, you can claim a credit for 8% of the tuition and fees paid, up to a maximum credit of $375 per student. You must file Schedule CT to claim this credit.
If you donate a vehicle to a charity and the charity gives the vehicle to an individual for employment purposes, you can claim a credit for 50% of the value of the vehicle, up to a maximum credit of $50 on a single return and $100 on a joint return. You need to get Form 4284 – Donor Tax Credit Certificate for Donated Vehicle from the charity.
If you receive a certificate from the Michigan State Housing Development Authority, you can claim the Individual or Family Development Account Credit.
If you have gross income of $65,000 or less, or $130,000 or less on a joint return, you can claim a credit for 25% of the “cost recovery” surcharge up to a maximum of $3 a month that appears on your electric bill.
If you were a Michigan resident for at least 6 months of the year, you can claim a homestead property tax credit whether you rent or own your home if your household income is not more than $82,650. This credit is calculated on Form MI-1040CR.
Mothers of a stillborn child who have a Certificate of Stillbirth from the Michigan Department of Community Health can claim a tax credit of $170.
If you adopt a child, you can claim a credit on your Michigan tax return for a portion of the adoption expenses. You must attach federal form 8839 and complete Michigan Form MI-8839.
Michigan farmers who have entered into a Farmland Development Rights Agreement with the Michigan Department of Agriculture to keep their land as farmland and not develop it for another purpose can qualify for the Farmland Preservation Tax Credit. This credit is a refund of a portion of the property taxes paid on the land. To claim this credit, file Form MI-1040CR-5.
If you have adjusted gross income of $37,500 or less, or $75,000 or less if you file a joint return, and you make energy efficiency improvements in your home, such as insulation and Energy Star appliances, a furnace, water heater, or windows, you can claim a credit for 10% of the cost, up to a maximum credit of $75 if you are single or married filing separately, or $150 if you file jointly. You must file Form 4764.
Low-income families in Michigan can claim the Home Heating Credit to help them pay the cost of heating their homes. This credit is funded by federal Low-Income Home Energy Assistance Program Grants. The amount of the credit you receive can vary from year to year, depending on how much the State of Michigan receives in grants. To claim this credit, file Form MI-1040CR-7. The deadline for filing for this credit for 2009 is September 30, 2010. To get your credit faster, you can e-file the form, with or without a Michigan state income tax return.
Sources:
Michigan 1040 Individual Income Tax Forms and Instructions – Michigan Department of Treasury
Michigan Adjustment of Capital Gains and Losses MI-1040D – Michigan Department of Treasury
Michigan College Tuition and Fees Credit – Schedule CT – Michigan Department of Treasury
Michigan Energy Efficient Qualified Home Improvement Credit – Form 4764 – Michigan Department of Treasury
Michigan Farmland Preservation Tax Credit Claim MI-1040CR-5 – Michigan Department of Treasury
Michigan Historic Preservation Tax Credit – Form 3581 – Michigan Department of Treasury
Michigan Home Heating Credit Claim MI-1040CR-7 – Michigan Department of Treasury
Michigan Homestead Property Tax Credit Claim MI-1040CR – Michigan Department of Treasury
Michigan Individual Income Tax Return MI-1040 – Michigan Department of Treasury
Schedule NR – Michigan Nonresident and Part-Year Resident Schedule – Michigan Department of Treasury
Michigan Schedule 1 Additions and Subtractions – Michigan Department of Treasury
Michigan Schedule of Apportionment MI-1040H – Michigan Department of Treasury
Renaissance Zone Information for Individuals – Michigan Department of Treasury
Reference:
- Frequently Asked Questions – Michigan Department of Treasury: www.michigan.gov/taxes/0,1607,7-238-43715—F,00.html
- Individual Income Tax Forms and Instructions – Michigan Department of Treasury: www.michigan.gov/taxes/0,1607,7-238-44143-227810–,00.html
