The complete guide
Michigan retirement tax 2026: an overview
Michigan does not tax Social Security, and most pension and 401(k) income is excluded from tax for people born after 1945, up to $67,610 a year for singles and $135,220 for couples in 2026. Here is exactly how it works.
Michigan is one of the most retirement-friendly states in the country, and its income tax is a big reason why. If you were born after 1945, nearly all of your retirement income is excluded from Michigan income tax. This guide explains the rules by birth year, the 2026 dollar limits, how Social Security fits in, and what retirees living in taxing cities need to know.
The short version
Michigan does not tax Social Security benefits at all. It also excludes pension, 401(k), IRA and other retirement income from tax for most retirees, anyone born after 1945, up to a limit that increases with inflation each year.
For 2026, the retirement exclusion is $67,610 for single filers and $135,220 for married couples filing jointly. If your total retirement income falls under that limit, which it does for most Michigan retirees, you pay no Michigan income tax on it.
Add the fact that Social Security is entirely untaxed, and a large share of Michigan retirees owe the state nothing at all.
Who qualifies: the birth-year phase-in
The Michigan retirement exemption is phased in by birth year. If you were born before 1946, your retirement income is fully exempt from Michigan income tax with no dollar limit, the older you are, the more generous the rule.
For people born after 1945, retirement income is still exempt, but subject to a dollar cap that adjusts with inflation. The cap for 2026 is $67,610 for single filers and $135,220 for married couples filing jointly.
The practical effect of the phase-in: retirees in their 80s face no limit, while retirees in their 60s and 70s face a generous limit that most households never hit.
What counts as retirement income
The exclusion covers the income sources Michigan defines as retirement income: distributions from 401(k), 403(b), 457 and other employer retirement plans; traditional and Roth IRA distributions; pension and annuity payments; and income from a defined-benefit pension plan.
Distributions from a Roth IRA or Roth 401(k) are not taxed by Michigan regardless, Roth withdrawals are excluded from income because the contributions were made after tax.
The exclusion applies to distributions taken in retirement from a plan funded during working years. It does not apply to current wages, self-employment income, or investment income like capital gains and dividends from a taxable brokerage account.
Social Security is completely untaxed
Social Security benefits are not subject to Michigan income tax, full stop. There is no phase-out, no income threshold, no "taxable Social Security" calculation as there is at the federal level.
This is a meaningful advantage over the roughly 40 other states and Washington DC that collect income tax. In those states, federal rules can make up to 85% of Social Security taxable; in Michigan, the number is always zero.
For a couple living on Social Security alone, Michigan taxable income is typically zero, which means zero state tax.
A retired couple’s example
Take a married couple, both born after 1945, receiving $40,000 in Social Security and $60,000 in pension and 401(k) withdrawals. Their Social Security is untaxed. Their $60,000 of retirement income is under the $135,220 joint exclusion, so it is untaxed too. Michigan taxable income: $0. State tax: $0.
Even if they withdraw $150,000 in a year, above the $135,220 joint cap, only the $14,780 over the cap would be taxed, at 4.25%, for about $628. That is a remarkably low bill for a six-figure retirement income.
The same income in a state like California would owe thousands. Michigan’s retirement rules are genuinely among the most generous in the country.
Working while collecting retirement income
The retirement exclusion only shields retirement income, it does not shield wages. If you retire, start drawing a pension, and also take a part-time job, the wages from the job are fully subject to Michigan’s 4.25% (after the $5,900 exemption).
The same logic applies to self-employment income after retirement: it is new income, not retirement income, and it is taxed.
This split matters for planning. A retiree working part-time at $20,000 a year pays roughly $600 in Michigan tax on those wages, on top of FICA and any federal tax, while their pension stays fully shielded.
Retirees in taxing cities
If you live in one of Michigan’s 24 taxing cities, the city income tax follows the same logic as the state: Social Security is excluded, and retirement income that qualifies for the Michigan exclusion is excluded from the city base too.
A Detroit resident with only Social Security and a modest pension typically owes very little to the city despite the 2.4% headline rate, the same exclusion that wipes out the state tax wipes out the city tax.
The same is true in Grand Rapids, Lansing, Highland Park and every other taxing city. For retirees, the city line on the stub is usually zero or very small.
Roth accounts in Michigan
Because Michigan starts from federal AGI and Roth withdrawals are not included in federal AGI, Roth distributions are automatically untaxed by Michigan at any age, with no limit.
For a retiree with a mix of traditional and Roth accounts, the traditional distributions use the retirement exclusion while the Roth distributions simply add nothing to Michigan income.
This makes Michigan a particularly friendly state for a Roth-heavy retirement plan: you enjoy the federal tax benefit of Roth accounts and the Michigan exclusion on whatever traditional money you still hold.
Planning your Michigan retirement taxes
The most common planning question is whether to worry about the $67,610 / $135,220 caps. For most households the answer is no, the caps are generous and indexed to inflation. But a retiree with very large traditional balances who plans to withdraw more than the cap should consider a Roth conversion strategy or a sequence that stays under the limit.
Roth conversions themselves: a conversion from a traditional IRA to a Roth IRA is taxable in the year you convert, because it’s treated as a distribution of the traditional balance. It counts against your retirement exclusion for that year.
As always with retirement planning, the specific facts of your plan, age and income matter, a tax professional can run the exact numbers. The calculator on this site applies the exclusion to the retirement-income inputs you give it.
The bottom line for Michigan retirees
Michigan does not tax Social Security. It excludes most pension and retirement-plan income, up to $67,610 single / $135,220 married in 2026, with no cap for those born before 1946. And it excludes retirement income from city taxes in the taxing cities.
For most Michigan retirees, the result is zero or near-zero state income tax. Combined with a moderate property-tax structure, that’s why Michigan consistently ranks among the most tax-friendly states for retirees.
If you’re still working, the retirement exclusion doesn’t help your wages yet, but every pre-tax dollar you contribute now is a dollar that will come back to you tax-free at the state level later.
Common retirement-tax questions, answered
A frequent question is whether the exclusion is automatic or requires a claim. It’s automatic: you don’t file a special form for the retirement exclusion, you simply don’t include qualifying retirement income on your Michigan return. The state pre-fills and reconciles the exclusion based on the birth-year rule.
Another is whether 401(k) money withdrawn early, before 59½, still qualifies. The exclusion applies to the type of income, not your age, so early withdrawals from a traditional 401(k) qualify for the retirement exclusion too, even with the federal 10% penalty. The penalty is a federal matter; Michigan’s exclusion still applies.
And a common confusion: inherited IRAs. Distributions from an inherited retirement account are treated as retirement income and qualify for the exclusion, up to the annual cap. That means a child inheriting a parent’s IRA can shield up to $67,610 a year of the distributions from Michigan tax while drawing them down.
How the calculator handles retirement income
If you run the calculator as a retiree, you can enter retirement withdrawals as your income source. The engine applies the Michigan retirement exclusion, $67,610 single / $135,220 married, to the retirement income you enter, zeroes out the state and city tax on the covered amount, and leaves Social Security untaxed by Michigan entirely.
Wages and self-employment income entered alongside retirement income are taxed normally, mirroring the real rule: the exclusion shields retirement income only, not new work.
This makes the calculator useful well beyond active workers. A retired couple can model a year of Social Security plus pension withdrawals plus a part-time job, and see exactly which dollars Michigan and their city tax and which they don’t.
Retirement withholding: pensions and payouts
If you take pension or retirement-plan distributions as periodic payments, federal and state withholding can be set by the plan administrator based on the W-4P you file. Michigan withholding on retirement distributions follows the same 4.25% flat structure, applied to the portion of the distribution that isn’t covered by the retirement exclusion.
For a lump-sum rollover from a 401(k) to an IRA, there is no Michigan tax on the rollover itself, it’s a transfer, not a distribution. The tax applies only when money actually comes out of the retirement account.
And for a required minimum distribution (RMD), the full RMD is retirement income under Michigan law, so it qualifies for the exclusion up to the annual cap. A retiree whose RMD is, say, $40,000 in 2026 owes no Michigan tax on it, because it sits under the $67,610 single limit.
Moving to Michigan in retirement
Michigan’s retirement rules make it a popular destination for retirees from high-tax states. When you move to Michigan, the exclusion applies to retirement income you receive after establishing Michigan residency, including pensions earned out of state. The $67,610 / $135,220 caps and the pre-1946 unlimited exclusion apply the same way to all qualifying retirement income, regardless of where it was earned.
One planning note: if you move mid-year, Michigan taxes the income you receive while a resident, and your former state may tax income earned there through its own residency or source rules. A partial-year return is common and usually favors the taxpayer when retirement income is involved.
For a couple drawing Social Security and a pension, moving to Michigan usually means their state income tax drops to near zero, the exact scenario this guide’s examples walk through.