Written by: Gene Smith, CPA

The tax rate was reduced from 4.35% to 4.25% on October 1, 2012, so why are so many taxpayers in Michigan seeing the amount of tax they are paying increase? Here are some of the more significant reasons your taxes may have increased in 2012:

Homestead Property Tax Credit Changes

  • Household income replaced by total household resources which exclude net losses from business (including farm), rental and royalties and also excludes net operating losses.
  • Credit is subject to reduction phase-out with total household resources of $41,001 or greater; if your total household resources exceed $50,000 you are not eligible for this credit.
  • Senior credit reduction percentage reduced from 100 percent to 60 percent based on total household resources beginning at $21,001.
  • Homesteads with a taxable value over $135,000 are not eligible for this credit.

Subtraction Changes

  • Significant retirement/pension subtraction changes based on taxpayer’s filing status and year of birth.
  • Dividend/interest/capital gains deduction for seniors now available only for those born prior to 1946.
  • Removed miscellaneous deductions for political contributions, prizes won in state regulated bingo, raffle, and charity games, and charitable contributions from retirement plans.
  • Removed the Venture Capital Deduction.
  • May only subtract the net income (instead of gross income beginning in 2012) from Michigan oil and gas royalty interest or working interest that is subject to Michigan severance tax.

 Exemptions No Longer Allowed

  • Special exemption for seniors age 65 or older
  • $600 exemption for children 18 and under
  • Special exemption for unemployment compensation equal to at least 50 percent of adjusted gross income

Non-Refundable Credits No Longer Allowed

  • City income tax
  • Public contribution
  • Contributions to homeless shelters, food banks, and community foundations
  • Contributions to medical savings accounts
  • Contributions to Individual or Family Development Account
  • Film credit for wage withholding
  • Vehicle donation
  • College tuition and fees
  • Credit for historic rehabilitation plans certified after December 31, 2011
  • Renewable energy surcharge

Refundable Credit Changes

  • Reduced Earned Income Tax Credit from 20 percent to 6 percent.
  • Removed the Qualified Adoption Expenses Credit.
  • Removed the Stillbirth Credit.
  • Removed the Energy Efficient Qualified Home Improvement Credit.