History of Income Tax Changes Affecting Seniors

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Two sources were used in compiling this report. One is a history of the income tax legislation done by the House Fiscal Agency in 1999. The other is a "Michigan Personal Income Tax Legislative History" in Appendix A of an analysis done by Treasury of the individual income tax for 2005. I also did some research of my own at the state law library.

Michigan had no income tax until 1967, when Public Act 281 was signed into law. The tax base was federal adjusted gross income (AGI), as it is still, and the rate was 2.6%. There was a personal exemption of $1,200 for every personal or dependency exemption allowed on the federal income tax return. There were only two subtractions:

  • Interest income from federal government obligations (which the state cannot legally tax)

  • Armed forces compensation

There was a property tax credit, but it was the same for everyone, regardless of age, and it was not a refundable credit, which means it could not exceed the amount of taxes owed.

Following is a list of changes to the Income Tax Act that affected seniors.

Public Act 332 of 1969 added retirement benefits to the compensation exempted for members of the armed forces and exempted retirement or pension benefits received from public retirement systems created by the state or any of its political subdivisions.

Public Act 20 of 1973 provided higher property tax credits for persons serving in the armed forces, veterans and their widows, blind persons and senior citizens. It also made the credit refundable.

Public Act 156 of 1974 redefined "senior citizen" under the property tax relief act of 1973 to include the unmarried remaining spouse of a person who was at least 65 years old at the time of death.

Public Act 217 of 1974 permitted recipients of private pension plans and disability benefits to deduct up to $7,500 on a single tax return and $10,000 on a joint return.

Public Act 43 of 1978 exempted state and federal energy assistance grants to low-income and senior citizen households.

Public Act 517 of 1980 allowed for the deduction of public retirement system benefits from another state provided that the other state offers a reciprocal deduction.

Public Act 284 of 1984 allowed taxpayers to deduct Social Security benefits from taxable income.

Public Act 254 of 1987 allowed an additional exemption of $1,500 equal to the standard personal exemption at that time - for persons over age 65. It also incrementally decreased the amount of the additional exemption to $1,400 for the 1987 tax year, $1,200 for the 1988 tax year, $1,000 for the 1989 tax year, and $900 for 1990 and subsequent tax years.

Public Act 268 of 1994 exempted federal pensions and up to $30,000 ($60,000 in the case of a joint return) of retirement benefits from a private source.

Public Act 269 of 1994 exempted up to $1,000 ($2,000 in the case of a joint return) of interest and dividend income earned by a senior citizen.

Public Act 230 of 1995 increased the maximum deduction senior citizens may take for interest, dividends, and capital gains, from $1,000 to $3,500 for a single return and from $2,000 to $7,000 for a joint return. The maximum deduction is reduced by the amount of pension income deducted.

Public Act 244 of 1995 provided that foster grandparent stipends received by a person 60 years old or older are excluded from household income when calculating the homestead property tax credit.

Public Act 291 of 1995 increased the maximum deduction senior citizens may take for interest, dividends, and capital gains income up to $7,500 for a single return and $15,000 for a joint return, beginning with the 1998 tax year (see Public Act 230 of 1995).

Public Act 301 of 2000 increased the special exemption amount to $1,800 in tax year 2004. The exemption amount will be increased in $100 increments to reflect increases in the Consumer Price Index.