Michigan taxpayers can continue to claim personal and dependent exemptions on their state income tax returns after 2017. Also, the personal exemption amount will increase in future years.
Reaction to Federal Changes
Michigan enacted legislation to continue the state exemptions in response to changes made by the federal Tax Cuts and Jobs Act (TCJA). The TCJA temporarily repealed the federal personal and dependent exemptions for years 2018 through 2025.
Michigan previously tied its personal and dependent exemptions to the number of exemptions allowed on a taxpayer’s federal return. The legislation removes references to the exemptions allowed on a taxpayer’s federal return and creates stand-alone state exemptions.
Personal Exemption Amounts
Taxpayers may claim a Michigan personal exemption equal to one of the following amounts, whichever is greater:
- an inflation-adjusted amount (rounded to the nearest $100); or
- an amount specified by statute.
The legislation sets the following amounts by statute:
- 2014 through 2017: $4,000
- 2018: $4,050
- 2019: $4,400
- 2020: $4,750
- 2021: $4,900
Also, for 2022 and each tax year after 2020, the legislation increases the inflation-adjusted exemption amount by an additional $600.
Dependent Exemption Amount
The Michigan dependent exemption amount remains unchanged at $1,500.
Savings Account Deductions
In addition, the legislation allows taxpayers to deduct interest earned and qualified withdrawals from an education savings account The deduction is available to the extent they included those amounts in their adjusted gross income. Previously, they could deduct interest earned and qualified withdrawals to the extent they did not deduct those amounts in determining their adjusted gross income.
The same change applies to deductions for interest and distributions from an Achieving a Better Life Experience (ABLE) savings account.
“Internal Revenue Code” Definition
Finally, for Michigan purposes, “Internal Revenue Code” now means:
- the Internal Revenue Code of 1986 in effect on January 1, 2018 (previously, January 1, 1996); or
- at the option of the taxpayer, the Internal Revenue Code in effect for the tax year.
Act 38 (S.B. 748), Laws 2018, effective February 28, 2018
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