HB 4201 — Individual income tax: retirement or pension benefits; department of corrections retirement and pension benefits; exempt from income taxes. Amends sec. 30 of 1967 PA 281 (MCL 206.30).

HB-4201, As Passed House, May 14, 2025 SUBSTITUTE FOR HOUSE BILL NO.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 (b) Add taxes on or measured by income to the extent the taxes have been deducted in arriving at adjusted gross income including any direct or indirect allocated share of taxes paid by a flow- through entity under part 4.

(i) Retirement or pension benefits received from a federal KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 public retirement system or from a public retirement system of or created by this state or a political subdivision of this state.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 (g) Adjustments resulting from the application of section 271.

(I) The purchaser has had the purchaser's offer to enter into KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 an advance tuition payment contract rejected by the board of directors of the Michigan education trust, if the board determines that the trust cannot accept an unlimited number of enrollees upon an actuarially sound basis.

(n) Deduct a net operating loss deduction for the taxable year KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 as determined under section 172 of the internal revenue code subject to the modifications under section 172(b)(2) of the internal revenue code and subject to the allocation and apportionment provisions of chapter 3 for the taxable year in which the loss was incurred.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 (ii) The amount of a refund received in the tax year based on taxes paid under the city income tax act, 1964 PA 284, MCL 141.501 to 141.787.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 (ii) "Recovered asset" means any asset of any type and any interest earned on that asset, including, but not limited to, bank deposits, insurance proceeds, or artwork owned by a Holocaust victim during the period from 1920 to 1945, withheld from that Holocaust victim from and after 1945, and not recovered, returned, or otherwise compensated to the Holocaust victim until after 1993.

(u) Add, to the extent not included in adjusted gross income, the amount of money withdrawn by the taxpayer in the tax year from education savings accounts, not to exceed the total amount deducted under subdivision (t) in the tax year and all previous tax years, if the withdrawal was not a qualified withdrawal as provided in the KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 Michigan education savings program act, 2000 PA 161, MCL 390.1471 to 390.1486.

(F) Capital gains from the sale or exchange of tangible KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 personal property located within the agreement area at the time of sale.

(i) To the extent not deducted in determining adjusted gross income, contributions made by the taxpayer in the tax year less qualified withdrawals made in the tax year from an ABLE savings KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 account, pursuant to the Michigan achieving a better life experience (ABLE) program act, 2015 PA 160, MCL 206.981 to 206.997, not to exceed a total deduction of $5,000.00 for a single return or $10,000.00 for a joint return per tax year.

(z) For tax years that begin after December 31, 2018, deduct, Deduct, to the extent included in adjusted gross income, compensation received in the tax year pursuant to the wrongful imprisonment compensation act, 2016 PA 343, MCL 691.1751 to KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 691.1757.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 (cc) Except as otherwise provided under subparagraph (i), for tax years that begin on and after January 1, 2022, deduct all of the following:

This subdivision does not apply to withdrawals that are less than the KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 sum of all contributions made to a first-time home buyer savings account in all previous tax years for which no deduction was claimed under subdivision (cc), less any contributions for which no deduction was claimed under subdivision (cc) that were withdrawn in all previous tax years.

(a) $1,800.00 for each taxpayer and every dependent of the KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 taxpayer who is a deaf person as defined in section 2 of the deaf persons' interpreters act, 1982 PA 204, MCL 393.502;

(5) A nonresident or a part-year resident is allowed that KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 proportion of an exemption or deduction allowed under subsection (2), (3), or (4) that the taxpayer's portion of adjusted gross income from Michigan sources bears to the taxpayer's total adjusted gross income.

(8) As used in this section, "retirement or pension benefits" KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 means distributions from all of the following:

(c) Retirement or pension benefits received by a surviving KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 spouse if those benefits qualified for a deduction prior to the decedent's death.

(b) Except as otherwise provided in subdivision (c), for a person born in 1946 through 1952, the sum of the deductions under subsection (1)(f)(i), (ii), and (iv) is limited to $20,000.00 for a KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 single return and $40,000.00 for a joint return.

After that person reaches the age of 67, the deductions under subsection (1)(f)(i), (ii), and (iv) do not apply and that person is eligible for a deduction of $35,000.00 for a single return and $55,000.00 for a joint return, or $70,000.00 for a joint return if applicable, which deduction is available against all KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 types of income and is not restricted to income from retirement or pension benefits.

If a person takes the deduction of $20,000.00 for a single return and KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 $40,000.00 for a joint return, that person shall not take the deduction under subsection (1)(f)(iii) and shall not take the personal exemption under subsection (2).

(10) In determining taxable income under this section, a KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 taxpayer may elect to deduct retirement or pension benefits as provided under subsection (1)(f) with the following limitations and restrictions or elect to apply the limitations and restrictions in subsection (9), or subsection (11) if applicable:

(d) For the 2026 tax year and each tax year after 2026, a taxpayer may deduct retirement or pension benefits as provided under subsection (1)(f), except that the amounts deductible under subsection (1)(f)(i) and (ii) combined are subject to the same KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj 1 maximum amounts allowed under subsection (1)(f)(iv) for a single return and a joint return for that same tax year.

KAS H00119'25 (H-3)(H-3)_HB4201_APH_1 6gcx7ddg1saj (c) "United States Consumer Price Index" means the United States Consumer Price Index for all urban consumers as defined and reported by the United States Department of Labor, Bureau of Labor Statistics.

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