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American Payroll Association (APA) Basic Guide to Payroll, 2013 Edition
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CCH® PAYROLL — 3/15/12

Michigan discusses withholding for pension recipients

The Michigan Department of Treasury has provided guidance regarding the personal income withholding tax requirement for pensions. Effective January 1, 2012, the Michigan tax treatment of pension and retirement benefits changed (see CCH PAYROLL MANAGEMENT GUIDE Report Letter No. 2202, dated June 7, 2011). Under state law, pension and retirement benefits include most payments reported on Form 1099-R for federal income tax purposes. Such benefits include defined benefit pensions, IRA distributions, and most payments from defined contribution plans. Military pensions, Social Security, and Railroad benefits are exempt from the personal income tax, as well as rollovers that are excluded from federal adjusted gross income.

Pension administrators are required to withhold if the pension administrator is subject to Michigan's taxing jurisdiction. If there is no withholding, the taxpayer will likely need to make estimated payments to prevent paying interest and penalty on the annual income tax return. Taxpayers should file Form MI W-4P, Withholding Certificate for Michigan Pension or Annual Payments, for each pension or annuity.

Finally, the taxability of the pension benefits depends on the age of the recipient. For taxpayers filing jointly, the age of the older spouse is used. (Withholding for Pension Recipients, Michigan Department of Treasury, March 2012.)

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