Michigan, like most states, bases its individual income tax on your federal adjusted gross income (AGI). But that amount is adjusted according to state-specific income exemptions and deductions that you subtract from your federal AGI to arrive at your Michigan taxable income. That state-taxable amount is subject to a 4.35-percent flat income tax.
Deduction for Exemptions
For 2010, Michigan allows you to deduct $3,600 for each personal exemption you claim on your federal tax return. Persons over age 65 can deduct another $2,300. Any person who is deaf, blind, wholly or partially paralyzed, or otherwise totally and permanently disabled can deduct another $2,300. You can deduct another $600 for each child that qualifies for the federal child tax credit. If you are a disabled veteran, you get another $300 deduction.
You can deduct income from U.S. government bonds and other securities included in your federal AGI. You also can deduct Michigan state and local tax refunds. Another deduction is any military pay received from the U.S. Armed Forces. Part-year residents and non-residents can deduct from federal AGI any income attributable to another state. If unemployment compensation represented 50 percent or more of your federal AGI, you can deduct $2,300 from your federal AGI.
Michigan is one of four states that allow you to deduct retirement benefits you receive from private pensions, individual retirement accounts and 401(k) plans. The total income deduction for these is limited to $45,120 for single filers and $90,240 if married filing jointly. You can deduct without limit the retirement pension income received from Michigan state or local governments, federal civil service or military retirement. Michigan is one of 35 states that lets you deduct Social Security retirement benefits from your federal AGI. Your state Social Security tax deduction equals the federally-taxable portion of your Social Security retirement benefit.
You can deduct income you earned from any source while you were a resident of a designated renaissance zone if you lived in that zone for at least 183 days, aren’t delinquent on the state or local taxes abated by the Renaissance Zone Act and have gross income of less than $1 million. If you lived in the zone all year, you can deduct all income. If you lived in the zone for part of the year, you must prorate your income. You also can deduct net contributions to the Michigan Education Savings Program, up to a maximum $5,000 for single filers or $10,000 for joint filers. You also can deduct contributions to national or state political parties or candidates up to a maximum $50 on a single return and $100 on a joint return. You can deduct winnings from state-regulated bingo, raffle or charity games, but not winnings from the Michigan State Lottery.