Retirement Tax Bill Passes Senate With 2023 Tax Year Effective Date

The Democratic-led Senate passed legislation Thursday rolling back the state’s tax law on pensions with some bipartisan support, rejecting amendments and calls by Republicans to provide an equal tax break for all seniors.

Passing by a vote of 23-15 was SB 1 , which would roll back changes to the retirement tax that were made in 2011. The three Republicans voting yes were Sen. John Damoose of Harbor Springs, Sen. Mark Huizenga of Walker and Sen. Michael Webber of Rochester Hills.

A substitute for SB 1 was adopted prior to passage which would eliminate a four-year phasing in period for the bill, making the changes effective during the 2023 tax year rather than being fully phased in by 2026.

Democrats have long decried the tax law changes made during the administration of then-Governor Rick Snyder and said the bill would right a wrong. GOP members said the Legislature should provide assistance to all seniors, not just a targeted group.

The bill would allow seniors with pension or other retirement benefits to either continue with the Snyder-era taxation formula or revert to the pre-2012 system. Prior to the changes that began with the 2012 tax year, pensions from public sector jobs were fully exempt from the state income tax and retirement benefits from private sector jobs were subject to a large deduction, $42,240 for singles and $84,480 for those filing jointly with those adjusting for inflation.

The bill makes a housekeeping change to adjust them for inflation in the statute, meaning the 2023 deductions will be $56,961 for singles and $113,922 for those filing jointly.

Republicans proposed several amendments, all of which failed 18-20 along party lines. GOP amendments that failed included eliminating or lowering the personal income tax rate, expanding the exemptions under SB 1 for all seniors and providing a $500 child credit for families.