Pension Recipients Frequently Asked Questions (FAQs)

1. What are my responsibilities as a pension recipient?

It is your responsibility to contact your pension administrator to ensure taxes are being withheld from your pension payments, whether you submit an MI W-4P or not.

2. If I am not a resident of Michigan but receive a Michigan pension, is my pension taxable to Michigan?

No. If you receive the MI W-4P from your pension administrator, return indicating you are not a resident of Michigan and mark box 1.

3. If my spouse passes away and I am the beneficiary of his/her pension payments, how is that treated?

Now that you are receiving the payments, the pension is treated as though it is yours.

The tax treatment of the pension payments depends on your date of birth. Follow the guidelines for your age bracket.

4. My spouse has passed away and I am receiving survivor retirement or pension benefits. What subtraction can I claim?

If the spouse who passed away could have subtracted the retirement or pension benefits while he or she were alive, then the surviving spouse may also subtract the benefits. The surviving spouse may continue to claim the subtraction even if the spouse remarries. The surviving spouse benefit subtraction only applies to distributions from the deceased spouse’s retirement or pension plan. After the death of one spouse, the retirement or pension subtraction that the surviving spouse receives as a result of his or her own employment is based on the surviving spouse’s own date of birth.

Example. George and Alice are married. George was born in 1948 and Alice was born in 1953. George and Alice both retired in 2012 and began drawing pension benefits. In 2012, they can subtract up to $40,000 of retirement benefits because they file a joint return and George was born between 1946 and 1952.

In 2013, George dies. Alice is the beneficiary on his retirement account. After his death, Alice receives monthly survivor benefits from George’s plan as well as monthly benefits from her plan. Since George died in 2013, they can still file a joint return and subtract up to $40,000 retirement benefits because George was born between 1946 and 1952.

In 2014, Alice continues to receive benefits from both plans. Alice can subtract up to $20,000 of benefits she received from George’s plan because she is single and the benefits would qualify for the subtraction if George was still alive. She cannot subtract any benefits she receives from her own plan because she was born after 1952. If the survivor benefits from George’s plan terminate in a later year, Alice would not be able to claim any subtraction.

5. My spouse was 67 when he passed away. I am receiving income from interest, dividends and capitals. I am not yet 67 and I have not remarried, can I deduct the income from interest, dividends and capital gains?

Yes, if the spouse who passed away was 67 or older in 2012 then the unremarried surviving spouse is also eligible to deduct the income from interest, dividends and capital gains. However, unlike retirement and pension benefits, the surviving spouse may not claim the deduction after remarriage.

Example. Tom and Mary are married. Tom was born in 1945 and Mary was born in 1947. They farmed their entire lives, and in 2010, they decided to retire. They sold their farm for $2M and lived off their savings.

In 2012, Tom died. Mary filed a joint return and reported $50,000 of income from interest, dividends, and capital gains. They can claim a deduction of $20,115, the maximum subtraction allowed on a joint return for the senior citizen’s interest, dividend, and capital gain deduction.

In 2013, Mary files a single return. She can claim a subtraction of $10,058 (as adjusted for inflation) for the interest, dividend, and capital gain deduction because she is the unremarried surviving spouse of a senior citizen born before 1946, and she files single.

If Mary remarries in 2014 and files a joint return with her new husband, she no longer qualifies as a senior citizen for purposes of the senior citizen interest, dividend, and capital gain subtraction because she is remarried and was not born before 1946.

6. If I file a joint return and my older spouse passes away, will I still benefit from his/her age bracket?

No, once you begin filing a single return, the pension subtraction will depend on your date of birth. Follow the guidelines for your age bracket.

7. If my spouse and I are filing Married Filing Separate, how do I determine Total Household Resources?

As with the previously used Total Household Income, the combined income of both spouses is used to determine Total Household Resources. For more information see Special Situations- Married Filing Separate.

8. If I made post-tax contributions to my pension, will the money be taxed again?

No, as long as the contributions are excluded from your Federal Adjusted Gross Income. These contributions are usually reported on a separate line of your 1099-R.

9. When should I complete the MI W-4P?

Complete form MI W-4P and give it to the administrator of your pension or annuity payments as soon as possible. The new tax changes take effect January 1, 2012.

10. Can I change my MI W-4P if I have already submitted it to my pension administrator?

Yes, you may change your elections on the MI W-4P at any time by submitting and updated MI W-4P to your pension administrator.

11. Is every pension administrator required to withhold Michigan tax?

Only companies over whom Michigan has taxing jurisdiction are required to withhold Michigan tax from your pension and/or annuity payments.

12. How do I know if my pension administrator falls under Michigan jurisdiction?

Contact your pension administrator.

13. What if my pension administrator does not fall under Michigan jurisdiction?

If your pension administrator does not fall under Michigan jurisdiction, you may request to have tax withheld, but the company is not required to do so. If no taxes are withheld from your payments, it is likely you will be required to make estimated payments in place of the withholding. For more information on estimated payments, see MI 1040ES.

14. If I am in the age bracket of 1946-1952, will my pension administrator know that the first $20,000 or $40,000 of my pension is not taxable?

The only way your pension administrator will know not to withhold on the first $20,000 or $40,000 of your pension is by receiving your completed MI W-4P. You will need to indicate your marital status and check box 3.

15. At what rate will my pension be taxed?

The tax rate for 2012 remains at 4.35%.

16. If I take an early distribution, does the new pension law apply to me?

No, early distributions are not considered retirement benefits under Michigan law and do not qualify for a pension subtraction.

17. What if I am married and my spouse was born before 1946 and I was born after 1946. Can I still subtract the full amount of my pension, or am I limited to the $40,000 maximum amount for joint returns?