Tax breaks for: Individuals
Has Michigan got a deal for you
Click on any of the categories below to see how many tax breaks are out there, and how much they cost the state treasury. The numbers were taken from the state's executive budget for 2013 and 2014.
Tax breaks for individuals
| Type of tax | Category | 2014 tax break value | Description |
|---|---|---|---|
| Property and Other Local Tax Expenditures | Homestead Exemption | $3,070,000,000 | Exempts most owner-occupied housing that is the primary residence of the owner from local school operating mills. For most school districts 18 mills are assessed locally for school operations. |
| State Income Tax | Income Attributable to Another State | $2,342,842,000 | Provides a deduction to Michigan residents for business income earned in another state or gains from the sale of property located in another state. In addition, non-residents may deduct income not allocated to Michigan. |
| Sales and Use Tax Expenditures | Food | $1,280,450,000 | Exempts food for human consumption, except prepared food intended for immediate consumption. |
| State Income Tax | Personal Exemption | $1,142,196,000 | Exempts $3,763 (tax year 2012) from AGI for each personal exemption claimed on the federal income tax return. The personal exemption will increase to $3,950 for 2013, $4,000 in 2014, and then increase in $100 increments based on the rate of inflation. The personal exemption reduced tax year 2010 revenue by approximately $1,066.5 million. The distribution of effective exemptions across AGI classes is outlined in Exhibit 14. Effective exemptions are exemptions that offset actual income. |
| Property and Other Local Tax Expenditures | Taxable Value Cap | $890,000,000 | Limits the rate of increase in property tax assessments to 5 percent or the rate of inflation, whichever is less. Taxable value becomes 50 percent of true cash value when ownership is transferred. |
| Sales and Use Tax Expenditures | Prescription Drugs | $628,490,000 | Exempts prescription drugs for human consumption. |
| State Income Tax | Homestead Property Tax Credit | $523,598,000 | Provides a refundable credit against income tax liability for property tax paid. In most cases, this credit is 60 percent of the amount by which property taxes exceed 3.5 percent of household income. Renters may use 20 percent of the rent paid to approximate their property tax, and then calculate their credit as above. Special credits are available for low-income senior citizens, veterans, and blind and disabled persons. For tax year 2010, homestead credits, excluding the farmland credit itemized separately, totaled $872.8 million (Exhibit 17). Of the homestead credits, 53.9 percent went to general taxpayers, 39.6 percent went to senior citizens, and the remaining 6.5 percent went to veterans and blind and disabled persons. |
| State Income Tax | Pension and Retirement Benefits Deduction | $495,069,000 | Provides a deduction for pension and retirement benefits based on the age of the taxpayer and, if married, the taxpayer’s spouse. For those born prior to 1946, all benefits from public sources are deductible and benefits from private sector plans are deductible up to $47,309 for singles and $94,618 for married couples filing a joint return (2012 limits). Taxpayers born between 1946 and 1952, inclusive, may deduct from all retirement benefits up to $20,000 for singles and $40,000 for married couples. There is no deduction allowed for taxpayers born after 1953 until they turn age 67 |
| Federal Adjustments | Social Security Benefits | $321,984,000 | Exempts most social security benefits. Federal social security benefits are not taxable under federal law unless half of these benefits plus modified AGI exceed $32,000 on a joint return or $25,000 on an individual return. If benefits exceed this amount, a portion (generally no more than 50 percent but potentially up to 85 percent of social security benefits) is taxable under federal law. This estimate is only for the portion of Social Security benefits that are excluded from federal AGI. The portion included in AGI is reported separately above |
| Federal Adjustments | Individual Retirement Accounts | $287,897,000 | Since 1982, taxpayers could establish an IRA and deduct from taxable income contributions up to $2,000 per year. In 1987, this deduction was reduced or eliminated for some taxpayers. Federal tax legislation enacted in 2001 increased the maximum contribution limit to $5,000 for 2011. Only persons with an AGI below $92,000 on a joint return ($58,000 on a single return) or not covered by an employer retirement plan can take the full $5,000 deduction. A partial deduction, phased out according to income, is available between $92,000-$112,000 for joint filers and $58,000-$68,000 for single filers. |
| State Income Tax | Social Security Benefits | $272,459,000 | Provides a deduction for Social Security benefits included in AGI. Depending on income, benefit recipients may have to include some Social Security benefits in AGI for federal tax purposes. |
| Corporate Income Tax | Foreign Dividends Income Exclusion | $211,800,000 | Excludes dividends and royalties received from a foreign entity or person from taxable income. |
| Sales and Use Tax Expenditures | Residential Utilities | $165,000,000 | Exempts the residential use of electricity, natural gas, and home heating fuels from the additional two percent sales and use tax rate. |
| Federal Adjustments | Gain on Sale of Primary Residence | $147,493,000 | Excludes from AGI a gain from the sale of a primary residence. To qualify for the full exemption, the taxpayer must have owned and lived in the home for at least two of the past five years and not claimed a similar exclusion in the previous two years. The maximum exclusion is $250,000 for a single return and $500,000 for a joint return. |
| City Income Tax | Nonresident Reduced Rate | $146,500,000 | Nonresidents’ income is taxed at half the rate paid by residents. |
| Federal Adjustments | Interest on Life Insurance Savings | $117,010,000 | Exempts interest earned from life insurance from tax if used to buy additional life insurance. |
| State Income Tax | Earned Income Credit | $115,500,000 | Provides a refundable income tax credit equal to 6 percent of any federal earned income tax credit for which a taxpayer is eligible. Approximately 64 percent of the credit exceeded the claimant’s income tax liability for tax year 2010. |
| Sales and Use Tax Expenditures | Newspapers, Periodicals, and Films | $94,820,000 | Exempts sales of copyrighted films, newspapers, and periodicals |
| Property and Other Local Tax Expenditures | Renaissance Zones | $87,000,000 | Exempts individuals who are residents of a Renaissance Zone or a business that is located and conducts business activity within a Renaissance Zone from most property taxes. |
| Sales and Use Tax Expenditures | Ophthalmic and Orthopedic Products | $64,810,000 | Exempts sales to individuals of artificial limbs or eyes, ophthalmic products, or orthopedic appliances. |
| Federal Adjustments | Workers’ Compensation | $56,478,000 | Exempts workers’ compensation received by the worker or his or her beneficiaries from taxation. |
| State Income Tax | Adjustments to Income (except military) | $54,300,000 | New data allow for many subtractions from income to be reported separately. The estimate here represents the net difference between the remaining subtractions and additions to income. The remaining subtractions include gains and losses from other states, net operating losses, and net income from gas and oil royalty or working interests. |
| Property and Other Local Tax Expenditures | Mobile Homes | $54,200,000 | The tax burden on mobile home occupants ($36 per year) is small compared with the tax burden on homeowners. The reported figure is an estimate of the difference between the amount of property taxes that would be paid on mobile homes if they were not exempt and the amount collected from the mobile home tax. |
| Federal Adjustments | Federal Adjustments to Income | $51,602,000 | Excludes moving expenses, health insurance purchased by self-employed persons, and alimony paid from the calculation of federal AGI |
| State Income Tax | Income Tax Paid to Other State Credit | $51,338,000 | Provides a credit to Michigan taxpayers subject to income tax if the taxpayer’s income is also taxed by another state. For tax year 2010, taxpayers claimed $44.8 million in credits. |
| Property and Other Local Tax Expenditures | Agriculture Transfers | $34,300,000 | Increases in the taxable value of property are capped at 5 percent or the rate of inflation, whichever is less. When ownership in property is transferred, the taxable value is set equal to the state equalized value, which is 50 percent of the true cash value. This provision exempts transfers of agricultural property from the “pop up” in taxable value when the new owner certifies that the property will continue to be used in agriculture. |
| State Income Tax | State and Local Income Tax Refunds | $23,307,000 | Provides a deduction of a state and local income tax refund if the refund is included in AGI. For federal tax purposes, payments of state and local taxes that are reported as an itemized deduction but subsequently returned as a refund are included in AGI for the year in which the refund was received. For example, income tax withholding for tax year 2012 may be claimed as an itemized deduction on the 2012 federal income tax return. If a portion of that withholding is returned to a taxpayer as a refund in early 2013, the taxpayer would report the refund as income on the 2013 federal income tax return, but subtract the refund amount on the 2013 Michigan return. |
| Property and Other Local Tax Expenditures | Neighborhood Enterprise Zones | $22,500,000 | Allows local units of government that participate in this program to grant property tax abatements. For new housing, the property tax rate is equal to one-half the statewide average millage rate. For rehabilitated housing, assessments are frozen so that the value of improvements is not taxed. Currently, 19 cities participate in this program. |
| State Income Tax | Senior Investment Income Deduction | $16,267,000 | Allows a taxpayer who was born prior to 1946 to deduct dividends, interest, and capital gains included in federal adjusted gross income (AGI) up to limits which are adjusted for inflation annually. The limits for tax year 2012 are $10,545 for singles and $21,091 for couples filing a joint return. The limits are reduced by the amount deducted for pension and retirement benefits. |
| State Income Tax | Dependent Exemption | $16,244,000 | Taxpayers claimed as a dependent on another taxpayer’s return may claim an exemption equal to $1,500 for themselves when filing their tax return. |
| City Income Tax | Personal Exemption | $12,400,000 | Exempts a certain amount of income for each person claimed on the federal form. The exemption amounts for the various cities are listed in Exhibit 22. While most cities record the number of personal exemptions provided, some do not. In these cases, personal exemptions are estimated based on the number of tax returns multiplied by a weighted average number of exemptions |
| State Income Tax | College Savings Accounts | $11,253,000 | A deduction is allowed for contributions to purchase contracts under the Michigan Education Trust or to fund accounts in the Michigan Education Savings Program. Investment earnings are also exempt. |
| Federal Adjustments | Income Maintenance Benefits | $10,172,000 | Excludes public assistance benefits such as Temporary Aid to Needy Families (TANF) and general assistance from taxation. |
| State Income Tax | Special Exemption | $9,585,000 | Allows a taxpayer and his or her spouse to each claim a $2,400 exemption for tax year 2012 if they are disabled. Taxpayers may also claim an exemption for disabled dependents. These exemptions are adjusted periodically for inflation. |
| State Income Tax | U.S. Government Bond Interest Deduction | $9,550,000 | Provides a deduction for interest received on debt issued by the U.S. Government and included in AGI. The deduction includes interest received from U.S. Savings Bonds and U.S. Treasury bills, notes, and bonds. |
| Sales and Use Tax Expenditures | Investment Coins | $9,430,000 | Exempts investment coins from sales and use tax. Investment coins are legal tender with a fair market value greater than the face value of the coins. |
| Federal Adjustments | Medical Savings Account | $9,190,000 | Reduces income by the amount contributed by or on behalf of a taxpayer to a qualified medical care savings account. |
| Sales and Use Tax Expenditures | Interstate Communications | $9,000,000 | Exempts international and WATS calls from the use tax. |
| Tobacco Products Tax | Sales on Military Bases and Reservations | $5,601,000 | Exempts the sale of cigarettes on U.S. military bases and to tribal members living within their own tribe’s Indian country. |
| Sales and Use Tax Expenditures | Imported Property from Other States | $1,660,000 | Exempts property that is not an aircraft purchased by a nonresident and brought into Michigan more than 90 days after purchase from the use tax. A similar exemption applies to property purchased by a resident and brought into the state more than 360 days after purchase. |
| State Income Tax | Renaissance Zones | $1,440,000 | Public Act 376 of 1996 establishes Renaissance Zones. Public Act 98 of 1999 allows for the designation of 10 additional zones. Public Act 139 of 1999 lets the communities with zones designated in 1996 establish new subzones and extend the tax cuts in their subzones. The Income Tax Act exempts residents of the zones from tax on most types of income. Special provisions apply to capital gains, interest, dividend, and lottery income. |
| Federal Adjustments | Railroad Retirement Benefits | $1,395,000 | Exempts most Type I railroad retirement benefits, which are taxed the same as social security benefits (see below). |
| Property and Other Local Tax Expenditures | Water Softeners | $1,270,000 | Exempts rented or leased water softener equipment and leased bottled water coolers from the personal property tax. |
| Insurance Company | Supplemental Workers’ Compensation | $1,200,000 | Provides a credit for 100 percent of the supplemental cost of living payments made to persons injured between September 1965 and December 1979. Prior to the identical SBT credit, firms were reimbursed through the appropriations process for these payments. |
| Corporate Income Tax | Government Securities' Income Exclusion | $900,000 | Excludes interest income from obligations or securities of the federal government, State of Michigan or Michigan governmental unit. |
| Sales and Use Tax Expenditures | Military PX Sales | $606,000 | Exempts military post-exchange sales. |
| Alcoholic Beverages Taxes | Beer Shipped Out of State | Exempts beer manufactured in Michigan or imported into this state and shipped for sale and consumption outside the state. | |
| Alcoholic Beverages Taxes | Homemade Wine | Exempts homemade wine or alcoholic cider from the wine tax when made on the premises by an owner for family use. | |
| Sales and Use Tax Expenditures | Military Vehicles Sales | Exempts vehicle sales to nonresidents serving in the U.S. armed forces, or when purchased by a Michigan resident in military service when sales tax is paid to another state. | |
| Sales and Use Tax Expenditures | Small Out of State Purchases | Exempts property purchased outside Michigan where the purchase price or actual value does not exceed $10 per calendar month. | |
| Sales and Use Tax Expenditures | Textbooks Sold by Schools | Exempts sales of textbooks sold by a public or nonpublic school to students enrolled in a K-12 program. | |
| City Income Tax | Federal Deductions | Tax expenditures for city income taxes are similar to those for state and federal income taxes. However, most city income taxes are based on gross income from salaries, bonuses, wages, commissions, interest, and dividends rather than on federal AGI | |
| City Income Tax | Pensions, Annuities, and Retirement | Exempts proceeds of pensions, annuities, and retirement plans from the city income tax. Although no statewide estimate is available, this tax expenditure is likely to be substantial. | |
| Sales and Use Tax Expenditures | Isolated Sales | Exempts an isolated sale or transfer transaction by a property owner not required to possess a sales tax license. | |
| Sales and Use Tax Expenditures | Nonresident Merchandise Transfer | Exempts promotional merchandise that is transferred pursuant to a redemption offer to a person located outside the state. | |
| Sales and Use Tax Expenditures | Nonresident Property | Exempts the storage, use, or consumption of property brought into Michigan by a nonresident living temporarily within this state. | |
| Sales and Use Tax Expenditures | Vehicles Purchased for Use in Another State | Provides for an adjusted tax on the vehicles purchased in Michigan for use in another state. The sales tax is equal to what would have been paid if the vehicle had been purchased in the other state. | |
| City Income Tax | Supplemental Unemployment Benefits | Exempts supplemental unemployment benefits from the city income tax. A statewide estimate is not available | |
| Alcoholic Beverages Taxes | Damaged Beer | Exempts beer from the sales tax when consumed on the manufacturer’s property or not offered for sale. |
In some cases, the state does not estimate the value of a tax break, leaving the tax break value empty in its tables.
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