Financial planning in Michigan
A flat 4.25%, Social Security exempt, and 2026 completes the return of the retirement and pension deduction.
Direct answer
Michigan taxes income at a flat 4.25%. Social Security is exempt, and Public Act 4 of 2023 phased back in a deduction for retirement and pension income that reaches 100% in 2026: taxpayers of any birth year may deduct qualifying pension, IRA and most 401(k) income up to an indexed maximum, which was $65,897 single or $131,794 joint for tax year 2025 (up from $64,040 and $128,080 for 2024); the 2026 figure had not been published when this was written. There is no estate or inheritance tax on current deaths. Detroit adds a 2.4% city income tax on residents that does not reach pensions or Social Security. For a Detroit, Ann Arbor or Grand Rapids household the 2026 change is the reason to look again at how much comes out of the IRA each year.
Michigan tax treatment
Figures are for tax year 2026, each read from the source beside it. Thresholds and rates are revised regularly; confirm the current year before acting on any of them. What these rules change in a household’s plan, from the order accounts are drawn to the timing of Roth conversions, is set out in the retirement tax planning overview.
Michigan's rate was 4.05% for tax year 2023 only and returned to 4.25% from 2024; the Treasury confirmed 4.25% for 2025 and again for 2026, because general-fund growth did not trigger the statutory reduction formula. Each taxpayer and dependent has a personal exemption of $5,800 for 2025 and $5,900 for 2026.
Social Security is subtracted in full. Under Public Act 4 of 2023 the retirement and pension deduction is fully restored for 2026 and later: taxpayers of any birth year may deduct qualifying retirement and pension benefits up to the indexed maximum, which Revenue Administrative Bulletin 2026-1 puts at $65,897 single and $131,794 joint for tax year 2025, up from $64,040 and $128,080 for 2024. The cap is indexed each year, and the 2026 figure had not been published when this was written. Qualifying benefits are most payments reported on a federal Form 1099-R, including defined-benefit pensions, IRA distributions and most defined-contribution payouts; taxpayers born before 1946 keep an unlimited deduction for public pensions, and retired police, fire and corrections officers may elect a full deduction of their public retirement benefits.
Michigan's inheritance tax applies only to inheritances from people who died on or before September 30, 1993, and the estate tax that replaced it was tied to a federal credit that no longer exists. Only the federal exclusion applies to a Michigan estate today.
Worth doing here
Things that are worth doing in Michigan that would not be worth doing, or would work differently, somewhere else.
With the deduction fully restored, a Michigan retiree of any age can shelter pension, IRA and most 401(k) income from the 4.25% tax up to an indexed cap, $65,897 (single) or $131,794 (joint) at the 2025 level, roughly $2,800 or $5,600 of state tax a year. Distributions held back during the 2023–2025 phase-in can be spread so each year's withdrawals fill, but do not exceed, the cap. Whether Roth-conversion income itself qualifies is not addressed in the Treasury guidance we found; confirm before relying on it.
Public Act 24 of 2025 lets taxpayers born after 1952 who have reached 67 take the Michigan standard deduction without the reduction for Social Security they subtract, for tax years 2026 through 2028 only. For those three years such a household keeps the full standard deduction against other income, including IRA withdrawals, while still excluding all Social Security, which favours realizing that income while the window lasts.
Contributions to the Michigan Education Savings Program are deductible up to $5,000 on a single return or $10,000 on a joint return each year, worth up to $212.50 or $425 at 4.25%. Only Michigan's own plan qualifies.
Detroit residents pay a 2.4% city income tax (1.2% for non-residents working in the city), the maximum Michigan allows, administered with the state return. The city excludes pensions, annuities and Social Security, so a Detroit retiree living on those owes little or no city tax while a working professional pays the full rate.
Federal and state, together
At 4.25% plus property tax, a working household in the Detroit or Ann Arbor area can approach the federal deduction cap, and above $500,000 of modified adjusted gross income the cap shrinks toward $10,000. In retirement the pension deduction removes much of the state layer, so the plan is largely federal.
The federal deduction for state and local taxes is $40,400 for tax year 2026 and begins to shrink above $500,000 of modified adjusted gross income, down to a floor of $10,000, and is scheduled to return to $10,000 after 2029. The federal estate tax exclusion is $15,000,000 per person for deaths in 2026. IRS, Instructions for Schedule A (2025), line 5e; IRS, tax year 2026 inflation adjustments (Rev. Proc. 2025-32).
Cities
Each city page covers what is local — how households there tend to be paid, what the first meeting usually covers — and inherits this state layer.
Metro Detroit is paid by General Motors, Ford and Stellantis and the suppliers around them, by Rocket Companies and the financial firms downtown, by DTE Energy, and by Henry Ford Health and Corewell Health.
Ann Arbor is paid above all by the University of Michigan and Michigan Medicine, the region's largest employer by far, alongside Toyota's North American research center, Domino's headquarters and a technology and life-sciences sector grown out of the university.
Grand Rapids is paid by large privately held companies, Meijer and Amway among them, by Steelcase and the office-furniture industry, by Corewell Health's West Michigan hospitals, and by a broad base of family-owned manufacturers.
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Common questions
Yes, above a deduction that is fully restored from 2026: retirement and pension income is deductible up to an indexed cap, which was $65,897 for a single filer or $131,794 on a joint return for tax year 2025 ($64,040 and $128,080 for 2024), for taxpayers of any birth year. The 2026 cap had not been published when this was written. Amounts above the cap are taxed at 4.25%.
No. Social Security benefits are subtracted in full on the Michigan return.
No. Detroit's 2.4% resident income tax excludes pensions, annuities and Social Security; it applies to wages and other earned and investment income.
No. Flames Financial Planning is based in Minnetonka, Minnesota, and serves Michigan households through a virtual planning relationship. This page describes the service area and does not claim a Michigan office.
Yes. State tax treatment shapes withdrawal order, Roth-conversion timing, and where investments are best held. Planning includes tax guidance and review of a completed return; Premier adds tax projections and preparation and filing through an independent tax partner.
Next step
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