Michigan 2026 Retirement Income Tax Exemption for Immigrants Clarified Under Public Act 4

(MICHIGAN) — Michigan retirees filing tax year 2026 state returns in 2027 can generally exclude most pension and retirement income from Michigan income tax, and the claim is typically made on Form MI-1040 with Schedule 1.

Michigan fully implemented the retirement income tax exemption in 2026 under Public Act 4 of 2023. That law phased in the subtraction from 2023 through 2026. Starting in tax year 2026, most retirement and pension income is fully exempt from Michigan state income tax.

For immigrants, visa holders, and green card holders, the rule is straightforward. Michigan does not apply different retirement income tax rules based on citizenship or immigration status. If you meet the income and age rules, you claim the same subtraction as any other taxpayer.

This guide explains which Michigan form to use, who qualifies, what income is exempt, and how to complete the retirement subtraction correctly.

Quick reference

📅 Deadline Alert: For tax year 2026, Michigan individual returns are generally due April 15, 2027. Late payment can trigger penalty and interest, even if you file later with an extension.

What changed in 2026

The main change is that Michigan’s phased-in retirement subtraction is now fully in place. Under Public Act 4 of 2023, taxpayers in the covered birth-year groups move to a 100% exemption in 2026.

In practical terms, that means many retirees will report retirement income on their federal return, then subtract it on the Michigan return if it qualifies.

This is a state tax change only. Your federal treatment stays the same. Pension, IRA, and 401(k) distributions may still be taxable on your federal return under Form 1040 rules. IRS Publication 17 and Publication 519 remain the main federal references for immigrants and resident or nonresident aliens.

For background on state filing issues, see our tax filing guide and retirement tax rules.

Who qualifies

Michigan’s retirement subtraction applies to all taxpayers regardless of immigration status. Michigan tax law does not separate citizens from non-citizens for this purpose.

Eligibility depends on three things:

• Birth year
• Type of income
• Tax year

For 2026 and later, the full exemption is available across the phased-in groups listed by birth year. Taxpayers born before 1946 already had a full exemption under prior rules.

If you are an immigrant retiree, the key point is simple:

• A green card holder living in Michigan can claim it if the income qualifies.
• An H-1B worker receiving qualifying retirement distributions can claim it if otherwise eligible.
• A nonresident alien with Michigan-source retirement income may need special review, especially if filing a part-year or nonresident state return.
• Michigan does not deny the subtraction because of visa type.

Federal residency rules still matter for your federal filing. See IRS Publication 519, U.S. Tax Guide for Aliens, for resident alien and nonresident alien rules.

What income is exempt in 2026

For tax year 2026, the following income is generally fully exempt from Michigan income tax if it qualifies as retirement or pension income:

• Public pensions
• Private pensions
• 401(k) withdrawals
• IRA distributions
• Most payments reported on Form 1099-R

That is the core rule many retirees will use when completing Michigan Schedule 1.

What is not exempt

Two items often cause confusion:

• Social Security is not part of this retirement subtraction. It is handled under a separate Michigan rule.
• Deferred compensation income is not exempt under this retirement subtraction.

⚠️ Warning: Do not subtract all Form 1099-R income automatically. Some deferred compensation and similar payments do not qualify for the Michigan exemption.

Birth-year phase-in table

Michigan phased in the exemption over four years. By 2026, all listed groups reach 100%.

How to complete the form

In most cases, you will use Form MI-1040 and Schedule 1.

Section 1: Start with your federal numbers

Begin with your federal return, usually Form 1040. Your Michigan return starts from federal income figures.

Have these records ready:

• Form 1099-R
• Form SSA-1099, if applicable
• IRA or pension statements
• Your federal Form 1040
• Michigan withholding statements, if any

If you are an immigrant taxpayer with foreign pensions, review whether the payment is treated as pension income for federal purposes first. IRS Publication 519 and Publication 901 may matter if a tax treaty applies.

Section 2: Complete Michigan Schedule 1

Michigan Schedule 1 is where you report additions and subtractions. The retirement subtraction is claimed in the subtraction section.

You will generally:

1. Identify the amount of qualifying retirement income.
2. Exclude income that is not eligible, such as deferred compensation.
3. Enter the allowable subtraction on the retirement line.
4. Carry the result to MI-1040.

Use the 2026 Michigan instructions carefully. The worksheet or line references may change from earlier years because the phase-in is now complete.

Section 3: Transfer the subtraction to MI-1040

After completing Schedule 1, transfer the subtraction amount to the proper line on Form MI-1040. This lowers your Michigan taxable income.

For many retirees, this means little or no Michigan tax on pension income for 2026.

Michigan indicated that many pension payers would stop withholding Michigan income tax beginning with February or March 2026 payments. Still, check your year-end forms. Some withholding may still appear and can be claimed as a credit.

Maximum amounts and practical impact

For 2026, the maximum deduction amounts are at least:

These figures matter if your qualifying retirement income is high. Many taxpayers will still fall below these amounts and effectively subtract all qualifying retirement income.

💡 Tax Tip: If Michigan tax was withheld from your pension early in 2026, do not ignore it. Report the withholding on your return so you receive proper credit.

For healthcare retirees, this can affect cash flow. Lower Michigan withholding may increase monthly pension payments, but it does not change your federal tax or Medicare rules.

Common errors to avoid

The same mistakes appear each filing season:

• Claiming the subtraction for deferred compensation
• Confusing Social Security with pension subtraction rules
• Using the wrong birth-year category
• Forgetting to attach or keep 1099-R records
• Claiming a Michigan subtraction for income not taxed federally in the same way
• Ignoring federal rules for treaty-based pension treatment

Immigrants should pay extra attention to residency status. A dual-status year, treaty position, or foreign pension can change the federal starting point.

For related filing issues, review our Michigan tax updates.

Supporting documents to keep

You may not need to mail every record with an e-filed return, but keep these documents:

• Form 1099-R
• Pension distribution statements
• IRA distribution records
• Federal Form 1040
• Any Michigan withholding documents
• Records showing your date of birth, if needed for eligibility review
• Treaty documentation, if you claimed federal treaty treatment

If Michigan requests proof later, you will need these records.

How to submit and confirm filing

You can file Michigan returns electronically or by mail. E-filing is usually faster and gives quicker confirmation.

Before submitting:

• Check that the retirement subtraction appears on Schedule 1
• Confirm the subtraction transferred to MI-1040
• Verify any Michigan withholding
• Review your birth year and filing status
• Save copies of the return and all supporting forms

After filing electronically, keep the submission confirmation with your tax records. If mailing, use the mailing address listed in the 2026 Michigan instructions and consider tracking delivery.

If you changed immigration status during 2026, compare your federal filing status first. A federal resident, nonresident, or dual-status issue can affect the Michigan return.

Current as of April 2, 2026.

File MI-1040 and Schedule 1 by April 15, 2027, keep your 1099-R records, and review federal pension reporting first if you are a noncitizen or changed visa status during 2026.

⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.