Michigan Gov. Gretchen Whitmer, on Tuesday, signed a tax relief bill that will benefit working and retired residents. Although this Michigan tax relief bill doesn’t include the expected $180 inflation relief checks, it does fulfill two major promises that Gov. Whitmer made when she announced her Lowering MI Costs Plan earlier this year.
Michigan Tax Relief Bill: What Does It Offer?
On Tuesday, Gov. Whitmer signed into law a new tax package that boosts tax credits for working families, as well as offers relief to seniors. Specifically, the Michigan tax relief bill expands the Earned Income Tax Credit for lower-income workers and repeals the so-called pension tax on retirement income.
“Back in 2011, the retirement tax was slapped on, and the Working Families Tax Credit was gutted to balance the budget. A single bill dealt a critical blow to people’s finances,” Whitmer wrote on Facebook. “Today, we are making it right.”
Gov. Whitmer’s tax relief bill significantly boosts the state’s Earned Income Tax Credit from 6% of the federal credit to 30%. This means if a taxpayer previously was eligible to take $150 off from being taxed through the EITC, they will now qualify for $750 of their income not taxed.
Last year, the state’s version of the EITC ranged from $34 to $416 and averaged $150. Now, the credit is estimated to range between $168 and $2,080, with an average of $750. Boosting the Earned Income Tax Credit could benefit 738,000 residents who qualified for the credit in 2019.
Expanding the EITC is expected to cost the state about $883 million in the fiscal year 2024 and about $441 million in future years. This expansion to the EITC will take effect in the 2023 tax year, and thus, would impact filings in 2024.
Pension Tax Changes
Talking about the pension tax, the Michigan tax relief bill restores a full tax exemption on pension income. The new bill, specifically, restores a 2011 tax over the next four years.
Starting in the tax year 2023, taxpayers will have the option to either benefit from the phased-in pension exemption or continue to claim an existing exemption for any type of retirement income.
It is estimated that repealing the pension tax will result in an average savings of $1,000 for 500,000 households that have pension income. Repealing the pension tax is estimated to cost the state about $281 million next year.
$180 Inflation Relief Checks: Why Are They Missing?
Although boosting the EITC and repealing the pension tax is a big win for Democrats, they, however, failed to win support for the $180 inflation relief checks that the governor proposed earlier.
It must be noted that the legislation that Gov. Whitmer signed Tuesday does call for immediate $180 inflation relief checks. The inflation relief checks provision, however, will be valid only if the law takes effect by April 18, something that is highly unlikely because the Senate Republicans denied the bill the supermajority it needed for it to go into immediate effect.
This article originally appeared on ValueWalk
Sponsored: Tips for Investing
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.