On Feb. 28, 2018, Michigan Governor Rick Snyder signed Senate Bill No. 748, amending certain definitions and references to the IRC in the state’s income tax code in response to federal tax reform. Senate Bill 748 also increases the state’s personal exemption beginning for the 2018 tax year.
Among other changes, federal tax reform eliminated the federal personal exemption for individuals in favor of a higher standard deduction. The Michigan personal exemption was tied to the number of exemptions provided by the former federal provisions. Therefore, without a statutory remedy, the Michigan personal exemption would also have been eliminated. Michigan does not provide a standard deduction for individual income taxpayers.
Senate Bill 748 removes references to the IRC and raises the Michigan personal exemption to $4,050 beginning for the 2018 tax year, $4,400 for the 2019 tax year, $4,750 for the 2020 tax year, and to $4,900 for the 2021 tax year. For the 2022 tax year and after, the personal exemption is calculated using an inflation-adjustment based on the consumer price index. The personal exemption is $4,000 for the 2017 tax year. As a result of these changes, Michigan taxpayers will continue to benefit from the exemption at the state level, and receive an increase in the total allowable amount beginning in 2018.
Takeaways
Michigan will continue to conform to the IRC on a rolling basis, but will no longer calculate the personal exemption based on the federal provisions. Much like Idaho’s response to federal tax reform, Michigan becomes yet another state selectively revising their tax code as a result of the new federal provisions. For more information on federal and state tax reform, please see RSM’s Tax Reform Resource Center.
