Partly taxed
How Michigan taxes retirement income
Michigan finished restoring its retirement exemption in 2026. Every taxpayer, regardless of birth year, can now subtract public and private retirement and pension benefits up to the state’s private pension limit, which is adjusted for inflation each year and was about $66,000 for a single filer and $132,000 for a joint return in 2025. Social Security is not taxed.
The subtraction covers MPSERS pensions for school employees, other Michigan public pensions, federal pensions, pensions from other states that give Michigan pensions a similar break, company pensions and IRA and 401(k) distributions. Public and private benefits are added together and then capped. People born before 1946 keep an unlimited subtraction for public pensions.
Income above the cap is taxed at Michigan’s flat 4.25%, plus a city income tax in Detroit and some other cities, though most cities exempt pensions. A retired teacher with a $45,000 MPSERS pension falls well under the cap and owes no Michigan income tax on it.
Questions
Does Michigan tax MPSERS pensions in 2026?
Not up to the inflation-adjusted cap, which applies to all your retirement income combined.
Does my birth year still matter?
Not for most people from 2026. The phase-in by birth year ended, and everyone uses the same cap. Those born before 1946 keep unlimited treatment of public pensions.
Does Michigan tax Social Security?
No.