New Michigan income tax withholding rates and personal exemption allowances are effective Oct. 1

Article courtesy of SBAM Approved Partner Clark Hill PLC
 
By Stephanie L. Hicks
 
Michigan income tax treatment of retirement plan benefits changed in 2012, and as a result, many recipients’ retirement plan benefits became subject to Michigan income tax effective January 1, 2012.  In addition, retirement plan administrators are required to withhold Michigan income tax on taxable retirement plan benefits. 

Earlier in the summer, Governor Rick Snyder signed into law a bill that accelerated the planned decrease in the Michigan income tax rate.  The rate that plan administrators are required to withhold from taxable retirement plan benefits will decrease from 4.35% to 4.25% effective October 1, 2012 (previously, this rate cut was scheduled to take effect on January 1, 2013).  Governor Snyder also signed into law a bill that increases the Michigan personal exemption allowance.  Effective October 1, 2012, the personal exemption allowance will increase from $3,700 per year to $3,950 per year for each personal exemption the retiree claims for tax purposes.  
 
Plan administrators who are required to withhold Michigan income tax on taxable retirement plan benefits should review the updated Withholding Tables published by the Michigan Department of Treasury and available at www.michigan.gov/taxes.