--- title: "Michigan Retirement Tax Update: What Changes in 2025 and 2026" description: Michigan has updated its state-level taxation of retirement income. image: https://blog.designfinancialgroup.com/hubfs/retirement%20pic.png --- [Skip to content](https://blog.designfinancialgroup.com/blog/michigan-retirement-tax-update-what-changes-in-2025-and-2026#main-content) ![](https://blog.designfinancialgroup.com/hs-fs/hubfs/retirement%20pic.png?width=1920&height=1080&name=retirement%20pic.png) # Michigan Retirement Tax Update: What Changes in 2025 and 2026 ![Richard Shupick](https://blog.designfinancialgroup.com/hs-fs/hubfs/Rich_Shupick_0073.jpg?width=48&height=48&name=Rich_Shupick_0073.jpg) Richard Shupick April 30, 2026 Michigan is in the process of phasing out state income tax on much of retirees’ retirement income. The changes are being implemented gradually, with significant improvements arriving in both **2025 and 2026**. ### **2025: Partial Retirement Income Exemption** For the **2025 tax year**, Michigan allows retirees to deduct **75% of qualifying retirement income** from their Michigan taxable income. This includes common retirement sources such as: - IRA withdrawals - 401(k) distributions - Pension income - Certain annuities and employer retirement plans Because the deduction is partial in 2025, some portion of retirement income may still be subject to Michigan’s flat income tax rate of about **4.25%**. ### **2026: Full Retirement Income Deduction** Beginning in **2026**, Michigan will allow **100% of the retirement income deduction**, significantly reducing state tax on retirement income. For many retirees, this means withdrawals from retirement accounts may be **completely exempt from Michigan state income tax up to the allowable deduction limit**. ### **Retirement Income Deduction Limit** For **married couples filing jointly**, the retirement income subtraction is approximately **$130,000 per year** (indexed for inflation). This means: | **Retirement Income** | **Michigan Tax Treatment** | | --- | --- | | Up to about $130,000 | No Michigan state tax | | Above the limit | Amount over the limit taxed at ~4.25% |     ### **Hypothetical Example** If a married couple withdraws **$130,000 or less** from their IRA or pension in 2026, the entire amount can typically be deducted from Michigan income, and **no Michigan state income tax would apply**. If they withdraw **$160,000**, the first **$130,000** may be deducted, leaving only $30,000 subject to Michigan’s income tax. ### **What This Means for Retirees** The 2026 change makes Michigan significantly more favorable for retirees drawing income from IRAs, 401(k)s, and pensions. With efficient planning, many couples may be able to withdraw **up to about $130,000 per year in retirement income without paying Michigan state income tax.** ## Share this post [mailto:https%3A%2F%2Fblog.designfinancialgroup.com%2Fblog%2Fmichigan-retirement-tax-update-what-changes-in-2025-and-2026](mailto:https%3A%2F%2Fblog.designfinancialgroup.com%2Fblog%2Fmichigan-retirement-tax-update-what-changes-in-2025-and-2026) ## Keep reading ### [![](https://blog.designfinancialgroup.com/hs-fs/hubfs/signal-2026-07-01-15-34-15-579_002.jpg?width=1536&height=1024&name=signal-2026-07-01-15-34-15-579_002.jpg) Part 2: The Financial Reality of Retiring Abroad](https://blog.designfinancialgroup.com/blog/part-2-the-financial-reality-of-retiring-abroad) ### [![](https://blog.designfinancialgroup.com/hs-fs/hubfs/retire_abroad_checklist_image.png?width=1774&height=887&name=retire_abroad_checklist_image.png) Retire Abroad Country Fit Checklist](https://blog.designfinancialgroup.com/blog/retire-abroad-country-fit-checklist) [![Design-FullLogo-HighRes tight 2500 White (2)-1](https://blog.designfinancialgroup.com/hs-fs/hubfs/Design-FullLogo-HighRes%20tight%202500%20White%20(2)-1.png?width=6532&height=1100&name=Design-FullLogo-HighRes%20tight%202500%20White%20(2)-1.png "Design-FullLogo-HighRes tight 2500 White (2)-1")](https://www.designfinancialgroup.com/) - Home - Products - Pricing - Blog - Company --- *Securities offered through OneAmerica Securities, Inc., a Registered Investment Advisor, Member [FINRA](https://www.finra.org/), [SIPC](https://www.sipc.org/). 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