Written by: Mike Riley, CPA

On May 25, 2011, Governor Rick Snyder signed legislation amending the Michigan Income Tax Act.  The new legislation affects 2012 tax returns. Many taxpayers will see an increase in their Michigan income tax – particularly as a result of changes made to the calculation of the Homestead Property Tax Credit.  Of course, the staff at Robert F. Murray & Company is available to help answer any questions you may have.

 Important changes that you should be aware of are as follows:

 Tax Rate:

  • Rate remains unchanged for 2012 at 4.35%.
  • For 2013 and each tax year thereafter the rate is 4.25%.

 Exemptions:

  • Personal exemption for 2012 is set at $3,700.
  • Personal exemptions will be indexed for inflation for 2013 and thereafter.
  • Repeal of the Special exemption for seniors and for unemployment compensation greater than 50% of AGI.
  • Special exemption for disabled and exemption for disabled veterans remain unchanged.

 Deductions/Subtractions:

  • Repeal of the $600 deduction for children (age) 18 and under.
  • Repeal of the Renaissance Zone deduction.
  • Removes both the gross income and the related expenses from oil and gas production if the gross income was subject to severance tax.

 Non-Refundable Credits:

  • Repeal of the credit for city income taxes.
  • Repeal of the credit for public contributions.
  • Repeal of the credit for contributions to homeless shelters, food banks and community foundations.
  • Repeal of the credit for automobile donations.
  • Repeal of the credit for college tuition and fees.

 Refundable Credits:

  • Reduces the Earned Income Tax Credit from 20% to 6%.

 Property Tax Credit:

  • Available for homes with taxable values of less than $135,000.
  • Credit phase out begins at $41,000 of total household resources and is reduced by 10% for each $1,000 increase.  Complete phase out at $50,000 of household resources.
  • For senior claimants: Full Credit of 100% if total household resources are $21,000 or less and reduced by 4% for each additional $1,000 in total Resources until $30,000 is reached. For total household resources of $30,000 to $41,000 senior claimants receive 60% of the credit.
  • All other claimants are eligible for 60% of the tax credit.
  • Household income (under the old rules) is now replaced by TOTAL household resources which EXCLUDES losses from business, rentals and royalties and Net Operating losses.