Senior Tax Deductions in Michigan

Michigan seniors in 2025 benefit from a significant pension deduction expansion that may exempt much of their retirement income from state tax.

Additionally, they can claim the standard federal age-based deductions and property tax credits.

State Income Tax Benefits

Michigan has a flat state income tax rate of 4.05% for 2025. The most significant benefit for seniors is the expanded pension subtraction:

• Michigan Pension Subtraction: Starting in 2025, Michigan has a greatly expanded subtraction for all types of retirement income (public, private, military, IRA distributions, and 401(k) withdrawals).
• Full Exemption: Most seniors can now fully deduct their eligible retirement income if they meet certain criteria or fall under the income thresholds.
• Maximum Subtraction: The maximum subtraction for 2025 is $67,359 for single filers and $134,718 for joint filers, provided they meet specific birth year requirements and other income sources are minimal.
• Social Security Exemption: Michigan does not tax Social Security benefits.
• Standard Deduction: Michigan uses the federal standard deduction amounts, which for 2025 are $15,750 for single filers and $31,500 for married couples filing jointly.

Property Tax Relief: Homestead Credit

Michigan offers a generous Homestead Property Tax Credit to ease the burden of property taxes for homeowners and renters who have a total household income of generally $73,650 or less (the 2025 limit).

• Benefit: This credit can be significant, potentially up to $1,600, and can be claimed by qualifying seniors to offset a portion of the property taxes they pay on their primary residence.
• Eligibility: You must be a Michigan resident who owns or rents a home subject to property taxes and meet the income requirements. You use Form MI-1040CR to claim this credit.

Federal Updates

Under the federal One Big Beautiful Bill (OBBBA), seniors also get new federal tax breaks:

• Senior Bonus Deduction: Seniors 65+ can claim a new federal deduction: $6,000 per person ($6,000 for single, $12,000 for a joint couple).
• Total Federal Write-off: A single senior’s total federal deduction (base + age-based + bonus) can be up to $23,750 in 2025, and a married couple’s (both 65+) can be up to $46,700.
• Phase-Outs: The bonus deduction phases out for single filers with a Modified AGI over $75,000 and joint filers over $150,000.