Michigan Retirement Income Deduction: The Public Act 4 Schedule by Tax Year

How does the Public Act 4 phase-in work, year by year?

Public Act 4 of 2023, the Lowering MI Costs Plan, was signed on March 7, 2023. It restores the retirement and pension subtraction that Michigan limited in 2012, in four steps. Each year a larger share of the full maximum became available, and the group of birth years allowed to use the phase-in widened. Treasury publishes the full maximum for the people born before 1946, who never lost it, and the phase-in is a percentage of that figure.

The 2023 full maximum, available to those born before 1946, was $61,518 single and $123,036 joint. The 25% phase-in figures are a quarter of those amounts, per the ORS FAQ. Treasury publishes the 2024 dollar figure in its 2024 return instructions and we have not reproduced it here. Michigan income tax is a flat 4.25%.

Why do retirees get to choose between three calculation methods?

Treasury lets a retiree pick, each year, whichever of three methods gives the better result: the tier structure based on year of birth (the pre-2023 rules, which for those born 1946 to 1952 meant a maximum of $20,000 single or $40,000 joint), the Public Act 4 phase-in based on tax year, or the subtraction for Michigan fire, police and corrections retirees. From 2026 the phase-in reaches 100% and is the larger figure for almost everyone, which is why the birth-year tiers matter less each year.

What income does the deduction apply to?

Qualifying retirement and pension benefits are, in Treasury's words, most income reported on federal Form 1099-R. That covers defined benefit pensions, IRA distributions and most payments from a defined contribution plan such as a 401(k). Deferred compensation generally does not qualify. The maximum under the phase-in is the combined total of private and public benefits included in your federal adjusted gross income, with reductions for certain public pensions.

Does Michigan tax Social Security?

No. Social Security benefits are exempt from Michigan income tax, and they sit outside this deduction entirely. Treasury has also published Public Act 24 of 2025, which lets taxpayers born after 1952 and aged 67 or older claim both the standard deduction and the Social Security deduction for tax years 2026 through 2028, removing an offset that previously reduced the standard deduction. The federal government still taxes up to 85% of benefits depending on provisional income.

What does a bigger state deduction change about withdrawal planning?

A larger Michigan deduction makes a given withdrawal cheaper at the state level than it was in 2022. It does nothing at the federal level. The same withdrawal still counts toward federal income tax, toward the provisional income that decides how much of your Social Security is taxed, and toward the modified adjusted gross income that Medicare uses to set IRMAA surcharges two years later. Many people plan around the Michigan figure and forget the federal layers, which is where the expensive mistakes happen. The order you draw from your accounts, and the year you do it, still decides the overall tax bill.

Treasury adjusts the maximum each year by the change in the Consumer Price Index, so the 2026 figures above are current for the 2026 tax year only. We re-check them before each tax season and update this page.