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What it All Means: Breaking Down the Retirement Tax and Earned Income Tax Credit

Over the past month, and for the foreseeable future, the biggest debate in Lansing is tax relief.

Tax code can be one of the most confusing aspects of state law so 9&10 News wanted to dive deep into some of these buzz terms so you can follow along with the debates.

“A fiscally responsible plan to put money back in people’s pockets by rolling back the retirement tax and boosting the working families tax credit,” said Gov. Gretchen Whitmer.


“Also known as the Earned Income Tax Credit,” said House Minority Leader Matt Hall.

“The current unfair and unpopular tax on retirees,” said Senate Majority Leader Winnie Brinks.

“A full Earned Income Tax Credit,” said Senate Minority Leader Aric Nesbitt.

“They want us to repeal the retirement tax,” said Speaker of the House Joe Tate.


Retirement tax. Earned Income Tax Credit.

They are terms at the top of politician mind’s right now but what do they actually mean for Michiganders?

First, the EITC, which is being rebranded as the Working Families Tax Credit.

It is a credit for working families to incentivize people to work. The actual amount tax payers get depends on income and number of dependents. A couple with three or more kids can qualify if they make no more than $59,140.


Right now, the credit is a federal program but the state matches the federal credit up to 6%. The expansion being discussed in Lansing will jump that to 30%, giving Michiganders five times more from the state to add to your federal credit.

Refund amounts, with the credit, could be more than $7,000 but average around half of that. The state democrats say 700,000 homes, and half the children in the state, will be impacted.

The retirement tax has only been around since 2011, created to help fill a budget shortfall. It imposed a 4.25% tax on pensions and retirement benefits.

Both sides of the aisle want to do away with it but the two chambers have a bit of a timeline disagreement. The House would phase in the repeal over the next four years while the Senate would remove it right away, and only allow taxes on non-pension retirement payments over a certain income threshold.


The democrats say this would save the average senior $1,000 a year and would impact half a million homes.

The details on these plans are sure to change as they work through Lansing but tax preparers say there is no reason to wait to file, because any changes made later this year can be amended on your tax return.

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