Bill Text: MI HB4454 | 2015-2016 | 98th Legislature | Introduced

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Bill Title: Individual income tax; deductions; deduction for retirement and pension benefits; eliminate limitations and restrictions. Amends sec. 30 of 1967 PA 281 (MCL 206.30).

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2015-04-16 - Printed Bill Filed 04/16/2015 [HB4454 Detail]

Download: Michigan-2015-HB4454-Introduced.html

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HOUSE BILL No. 4454

 

April 15, 2015, Introduced by Rep. Dianda and referred to the Committee on Tax Policy.

 

     A bill to amend 1967 PA 281, entitled

 

"Income tax act of 1967,"

 

by amending section 30 (MCL 206.30), as amended by 2012 PA 597.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 30. (1) "Taxable income" means, for a person other than a

 

corporation, estate, or trust, adjusted gross income as defined in

 

the internal revenue code subject to the following adjustments

 

under this section:

 

     (a) Add gross interest income and dividends derived from

 

obligations or securities of states other than Michigan, in the

 

same amount that has been excluded from adjusted gross income less

 

related expenses not deducted in computing adjusted gross income

 

because of section 265(a)(1) of the internal revenue code.

 

     (b) Add taxes on or measured by income to the extent the taxes

have been deducted in arriving at adjusted gross income.

 

     (c) Add losses on the sale or exchange of obligations of the

 

United States government, the income of which this state is

 

prohibited from subjecting to a net income tax, to the extent that

 

the loss has been deducted in arriving at adjusted gross income.

 

     (d) Deduct, to the extent included in adjusted gross income,

 

income derived from obligations, or the sale or exchange of

 

obligations, of the United States government that this state is

 

prohibited by law from subjecting to a net income tax, reduced by

 

any interest on indebtedness incurred in carrying the obligations

 

and by any expenses incurred in the production of that income to

 

the extent that the expenses, including amortizable bond premiums,

 

were deducted in arriving at adjusted gross income.

 

     (e) Deduct, to the extent included in adjusted gross income,

 

the following:

 

     (i) Compensation, including retirement benefits, received for

 

services in the armed forces of the United States.

 

     (ii) Retirement or pension benefits under the railroad

 

retirement act of 1974, 45 USC 231 to 231v.

 

     (iii) beginning Beginning January 1, 2012, retirement or

 

pension benefits received for services in the Michigan national

 

guard.National Guard.

 

     (f) Deduct the following to the extent included in adjusted

 

gross income: subject to the limitations and restrictions set forth

 

in subsection (9):

 

     (i) Retirement or pension benefits received from a federal

 

public retirement system or from a public retirement system of or

created by this state or a political subdivision of this state.

 

     (ii) Retirement or pension benefits received from a public

 

retirement system of or created by another state or any of its

 

political subdivisions if the income tax laws of the other state

 

permit a similar deduction or exemption or a reciprocal deduction

 

or exemption of a retirement or pension benefit received from a

 

public retirement system of or created by this state or any of the

 

political subdivisions of this state.

 

     (iii) Social security benefits as defined in section 86 of the

 

internal revenue code.

 

     (iv) Beginning on and after January 1, 2007, retirement or

 

pension benefits not deductible under subparagraph (i) or

 

subdivision (e) from any other retirement or pension system or

 

benefits from a retirement annuity policy in which payments are

 

made for life to a senior citizen, to a maximum of $42,240.00 for a

 

single return and $84,480.00 for a joint return. The maximum

 

amounts allowed under this subparagraph shall be reduced by the

 

amount of the deduction for retirement or pension benefits claimed

 

under subparagraph (i) or subdivision (e) and by the amount of a

 

deduction claimed under subdivision (p). For the 2008 tax year and

 

each tax year after 2008, the maximum amounts allowed under this

 

subparagraph shall be adjusted by the percentage increase in the

 

United States consumer price index for the immediately preceding

 

calendar year. The department shall annualize the amounts provided

 

in this subparagraph as necessary. As used in this subparagraph,

 

"senior citizen" means that term as defined in section 514.

 

     (v) The amount determined to be the section 22 amount eligible

for the elderly and the permanently and totally disabled credit

 

provided in section 22 of the internal revenue code.

 

     (g) Adjustments resulting from the application of section 271.

 

     (h) Adjustments with respect to estate and trust income as

 

provided in section 36.

 

     (i) Adjustments resulting from the allocation and

 

apportionment provisions of chapter 3.

 

     (j) Deduct the following payments made by the taxpayer in the

 

tax year:

 

     (i) For the 2010 tax year and each tax year after 2010, the

 

amount of a charitable contribution made to the advance tuition

 

payment fund created under section 9 of the Michigan education

 

trust act, 1986 PA 316, MCL 390.1429.

 

     (ii) The amount of payment made under an advance tuition

 

payment contract as provided in the Michigan education trust act,

 

1986 PA 316, MCL 390.1421 to 390.1442.

 

     (iii) The amount of payment made under a contract with a

 

private sector investment manager that meets all of the following

 

criteria:

 

     (A) The contract is certified and approved by the board of

 

directors of the Michigan education trust to provide equivalent

 

benefits and rights to purchasers and beneficiaries as an advance

 

tuition payment contract as described in subparagraph (ii).

 

     (B) The contract applies only for a state institution of

 

higher education as defined in the Michigan education trust act,

 

1986 PA 316, MCL 390.1421 to 390.1442, or a community or junior

 

college in Michigan.

     (C) The contract provides for enrollment by the contract's

 

qualified beneficiary in not less than 4 years after the date on

 

which the contract is entered into.

 

     (D) The contract is entered into after either of the

 

following:

 

     (I) The purchaser has had his or her offer to enter into an

 

advance tuition payment contract rejected by the board of directors

 

of the Michigan education trust, if the board determines that the

 

trust cannot accept an unlimited number of enrollees upon an

 

actuarially sound basis.

 

     (II) The board of directors of the Michigan education trust

 

determines that the trust can accept an unlimited number of

 

enrollees upon an actuarially sound basis.

 

     (k) If an advance tuition payment contract under the Michigan

 

education trust act, 1986 PA 316, MCL 390.1421 to 390.1442, or

 

another contract for which the payment was deductible under

 

subdivision (j) is terminated and the qualified beneficiary under

 

that contract does not attend a university, college, junior or

 

community college, or other institution of higher education, add

 

the amount of a refund received by the taxpayer as a result of that

 

termination or the amount of the deduction taken under subdivision

 

(j) for payment made under that contract, whichever is less.

 

     (l) Deduct from the taxable income of a purchaser the amount

 

included as income to the purchaser under the internal revenue code

 

after the advance tuition payment contract entered into under the

 

Michigan education trust act, 1986 PA 316, MCL 390.1421 to

 

390.1442, is terminated because the qualified beneficiary attends

an institution of postsecondary education other than either a state

 

institution of higher education or an institution of postsecondary

 

education located outside this state with which a state institution

 

of higher education has reciprocity.

 

     (m) Add, to the extent deducted in determining adjusted gross

 

income, the net operating loss deduction under section 172 of the

 

internal revenue code.

 

     (n) Deduct a net operating loss deduction for the taxable year

 

as determined under section 172 of the internal revenue code

 

subject to the modifications under section 172(b)(2) of the

 

internal revenue code and subject to the allocation and

 

apportionment provisions of chapter 3 of this part for the taxable

 

year in which the loss was incurred.

 

     (o) Deduct, to the extent included in adjusted gross income,

 

benefits from a discriminatory self-insurance medical expense

 

reimbursement plan.

 

     (p) Beginning on and after January 1, 2007, subject to any

 

limitation provided in this subdivision, a taxpayer who is a senior

 

citizen may deduct to the extent included in adjusted gross income,

 

interest, dividends, and capital gains received in the tax year not

 

to exceed $9,420.00 for a single return and $18,840.00 for a joint

 

return. The maximum amounts allowed under this subdivision shall be

 

reduced by the amount of a deduction claimed for retirement

 

benefits under subdivision (e) or a deduction claimed under

 

subdivision (f)(i), (ii), (iv), or (v). For the 2008 tax year and

 

each tax year after 2008, the maximum amounts allowed under this

 

subdivision shall be adjusted by the percentage increase in the

United States consumer price index for the immediately preceding

 

calendar year. The department shall annualize the amounts provided

 

in this subdivision as necessary. Beginning January 1, 2012, the

 

deduction under this subsection is not available to a senior

 

citizen born after 1945. As used in this subdivision, "senior

 

citizen" means that term as defined in section 514.

 

     (q) Deduct, to the extent included in adjusted gross income,

 

all of the following:

 

     (i) The amount of a refund received in the tax year based on

 

taxes paid under this part.

 

     (ii) The amount of a refund received in the tax year based on

 

taxes paid under the city income tax act, 1964 PA 284, MCL 141.501

 

to 141.787.

 

     (iii) The amount of a credit received in the tax year based on

 

a claim filed under sections 520 and 522 to the extent that the

 

taxes used to calculate the credit were not used to reduce adjusted

 

gross income for a prior year.

 

     (r) Add the amount paid by the state on behalf of the taxpayer

 

in the tax year to repay the outstanding principal on a loan taken

 

on which the taxpayer defaulted that was to fund an advance tuition

 

payment contract entered into under the Michigan education trust

 

act, 1986 PA 316, MCL 390.1421 to 390.1442, if the cost of the

 

advance tuition payment contract was deducted under subdivision (j)

 

and was financed with a Michigan education trust secured loan.

 

     (s) Deduct, to the extent included in adjusted gross income,

 

any amount, and any interest earned on that amount, received in the

 

tax year by a taxpayer who is a Holocaust victim as a result of a

settlement of claims against any entity or individual for any

 

recovered asset pursuant to the German act regulating unresolved

 

property claims, also known as Gesetz zur Regelung offener

 

Vermogensfragen, as a result of the settlement of the action

 

entitled In re: Holocaust victim assets litigation, CV-96-4849, CV-

 

96-5161, and CV-97-0461 (E.D. NY), or as a result of any similar

 

action if the income and interest are not commingled in any way

 

with and are kept separate from all other funds and assets of the

 

taxpayer. As used in this subdivision:

 

     (i) "Holocaust victim" means a person, or the heir or

 

beneficiary of that person, who was persecuted by Nazi Germany or

 

any Axis regime during any period from 1933 to 1945.

 

     (ii) "Recovered asset" means any asset of any type and any

 

interest earned on that asset including, but not limited to, bank

 

deposits, insurance proceeds, or artwork owned by a Holocaust

 

victim during the period from 1920 to 1945, withheld from that

 

Holocaust victim from and after 1945, and not recovered, returned,

 

or otherwise compensated to the Holocaust victim until after 1993.

 

     (t) Deduct, to the extent not deducted in determining adjusted

 

gross income, both of the following:

 

     (i) Contributions made by the taxpayer in the tax year less

 

qualified withdrawals made in the tax year from education savings

 

accounts, calculated on a per education savings account basis,

 

pursuant to the Michigan education savings program act, 2000 PA

 

161, MCL 390.1471 to 390.1486, not to exceed a total deduction of

 

$5,000.00 for a single return or $10,000.00 for a joint return per

 

tax year. The amount calculated under this subparagraph for each

education savings account shall not be less than zero.

 

     (ii) The amount under section 30f.

 

     (u) Add, to the extent not included in adjusted gross income,

 

the amount of money withdrawn by the taxpayer in the tax year from

 

education savings accounts, not to exceed the total amount deducted

 

under subdivision (t) in the tax year and all previous tax years,

 

if the withdrawal was not a qualified withdrawal as provided in the

 

Michigan education savings program act, 2000 PA 161, MCL 390.1471

 

to 390.1486. This subdivision does not apply to withdrawals that

 

are less than the sum of all contributions made to an education

 

savings account in all previous tax years for which no deduction

 

was claimed under subdivision (t), less any contributions for which

 

no deduction was claimed under subdivision (t) that were withdrawn

 

in all previous tax years.

 

     (v) A taxpayer who is a resident tribal member may deduct, to

 

the extent included in adjusted gross income, all nonbusiness

 

income earned or received in the tax year and during the period in

 

which an agreement entered into between the taxpayer's tribe and

 

this state pursuant to section 30c of 1941 PA 122, MCL 205.30c, is

 

in full force and effect. As used in this subdivision:

 

     (i) "Business income" means business income as defined in

 

section 4 and apportioned under chapter 3.

 

     (ii) "Nonbusiness income" means nonbusiness income as defined

 

in section 14 and, to the extent not included in business income,

 

all of the following:

 

     (A) All income derived from wages whether the wages are earned

 

within the agreement area or outside of the agreement area.

     (B) All interest and passive dividends.

 

     (C) All rents and royalties derived from real property located

 

within the agreement area.

 

     (D) All rents and royalties derived from tangible personal

 

property, to the extent the personal property is utilized within

 

the agreement area.

 

     (E) Capital gains from the sale or exchange of real property

 

located within the agreement area.

 

     (F) Capital gains from the sale or exchange of tangible

 

personal property located within the agreement area at the time of

 

sale.

 

     (G) Capital gains from the sale or exchange of intangible

 

personal property.

 

     (H) All pension income and benefits including, but not limited

 

to, distributions from a 401(k) plan, individual retirement

 

accounts under section 408 of the internal revenue code, or a

 

defined contribution plan, or payments from a defined benefit plan.

 

     (I) All per capita payments by the tribe to resident tribal

 

members, without regard to the source of payment.

 

     (J) All gaming winnings.

 

     (iii) "Resident tribal member" means an individual who meets

 

all of the following criteria:

 

     (A) Is an enrolled member of a federally recognized tribe.

 

     (B) The individual's tribe has an agreement with this state

 

pursuant to section 30c of 1941 PA 122, MCL 205.30c, that is in

 

full force and effect.

 

     (C) The individual's principal place of residence is located

within the agreement area as designated in the agreement under sub-

 

subparagraph (B).

 

     (w) For tax years beginning after December 31, 2011, eliminate

 

all of the following:

 

     (i) Income from producing oil and gas to the extent included

 

in adjusted gross income.

 

     (ii) Expenses of producing oil and gas to the extent deducted

 

in arriving at adjusted gross income.

 

     (2) Except as otherwise provided in subsection (7), a personal

 

exemption of $3,700.00 multiplied by the number of personal or

 

dependency exemptions allowable on the taxpayer's federal income

 

tax return pursuant to the internal revenue code shall be

 

subtracted in the calculation that determines taxable income.

 

     (3) Except as otherwise provided in subsection (7), a single

 

additional exemption determined as follows shall be subtracted in

 

the calculation that determines taxable income in each of the

 

following circumstances:

 

     (a) $1,800.00 for each taxpayer and every dependent of the

 

taxpayer who is a deaf person as defined in section 2 of the deaf

 

persons' interpreters act, 1982 PA 204, MCL 393.502; a paraplegic,

 

a quadriplegic, or a hemiplegic; a person who is blind as defined

 

in section 504; or a person who is totally and permanently disabled

 

as defined in section 522. When a dependent of a taxpayer files an

 

annual return under this part, the taxpayer or dependent of the

 

taxpayer, but not both, may claim the additional exemption allowed

 

under this subdivision. As used in this subdivision, "dependent"

 

means that term as defined in section 30e.

     (b) For tax years beginning after 2007, $250.00 for each

 

taxpayer and every dependent of the taxpayer who is a qualified

 

disabled veteran. When a dependent of a taxpayer files an annual

 

return under this part, the taxpayer or dependent of the taxpayer,

 

but not both, may claim the additional exemption allowed under this

 

subdivision. As used in this subdivision:

 

     (i) "Qualified disabled veteran" means a veteran with a

 

service-connected disability.

 

     (ii) "Service-connected disability" means a disability

 

incurred or aggravated in the line of duty in the active military,

 

naval, or air service as described in 38 USC 101(16).

 

     (iii) "Veteran" means a person who served in the active

 

military, naval, marine, coast guard, or air service and who was

 

discharged or released from his or her service with an honorable or

 

general discharge.

 

     (4) An individual with respect to whom a deduction under

 

section 151 of the internal revenue code is allowable to another

 

federal taxpayer during the tax year is not considered to have an

 

allowable federal exemption for purposes of subsection (2), but may

 

subtract $1,500.00 in the calculation that determines taxable

 

income for a tax year.

 

     (5) A nonresident or a part-year resident is allowed that

 

proportion of an exemption or deduction allowed under subsection

 

(2), (3), or (4) that the taxpayer's portion of adjusted gross

 

income from Michigan sources bears to the taxpayer's total adjusted

 

gross income.

 

     (6) In calculating taxable income, a taxpayer shall not

subtract from adjusted gross income the amount of prizes won by the

 

taxpayer under the McCauley-Traxler-Law-Bowman-McNeely lottery act,

 

1972 PA 239, MCL 432.1 to 432.47.

 

     (7) For each tax year beginning on and after January 1, 2013,

 

the personal exemption allowed under subsection (2) shall be

 

adjusted by multiplying the exemption for the tax year beginning in

 

2012 by a fraction, the numerator of which is the United States

 

consumer price index for the state fiscal year ending in the tax

 

year prior to the tax year for which the adjustment is being made

 

and the denominator of which is the United States consumer price

 

index for the 2010-2011 state fiscal year. The resultant product

 

shall be rounded to the nearest $100.00 increment. As used in this

 

section, "United States consumer price index" means the United

 

States consumer price index for all urban consumers as defined and

 

reported by the United States department of labor, bureau of labor

 

statistics. Department of Labor, Bureau of Labor Statistics. For

 

each tax year, the exemptions allowed under subsection (3) shall be

 

adjusted by multiplying the exemption amount under subsection (3)

 

for the tax year by a fraction, the numerator of which is the

 

United States consumer price index for the state fiscal year ending

 

the tax year prior to the tax year for which the adjustment is

 

being made and the denominator of which is the United States

 

consumer price index for the 1998-1999 state fiscal year. The

 

resultant product shall be rounded to the nearest $100.00

 

increment.

 

     (8) As used in subsection (1)(f), "retirement or pension

 

benefits" means distributions from all of the following:

     (a) Except as provided in subdivision (d), qualified pension

 

trusts and annuity plans that qualify under section 401(a) of the

 

internal revenue code, including all of the following:

 

     (i) Plans for self-employed persons, commonly known as Keogh

 

or HR10 plans.

 

     (ii) Individual retirement accounts that qualify under section

 

408 of the internal revenue code if the distributions are not made

 

until the participant has reached 59-1/2 years of age, except in

 

the case of death, disability, or distributions described by

 

section 72(t)(2)(A)(iv) of the internal revenue code.

 

     (iii) Employee annuities or tax-sheltered annuities purchased

 

under section 403(b) of the internal revenue code by organizations

 

exempt under section 501(c)(3) of the internal revenue code, or by

 

public school systems.

 

     (iv) Distributions from a 401(k) plan attributable to employee

 

contributions mandated by the plan or attributable to employer

 

contributions.

 

     (b) The following retirement and pension plans not qualified

 

under the internal revenue code:

 

     (i) Plans of the United States, state governments other than

 

this state, and political subdivisions, agencies, or

 

instrumentalities of this state.

 

     (ii) Plans maintained by a church or a convention or

 

association of churches.

 

     (iii) All other unqualified pension plans that prescribe

 

eligibility for retirement and predetermine contributions and

 

benefits if the distributions are made from a pension trust.

     (c) Retirement or pension benefits received by a surviving

 

spouse if those benefits qualified for a deduction prior to the

 

decedent's death. Benefits received by a surviving child are not

 

deductible.

 

     (d) Retirement and pension benefits do not include:

 

     (i) Amounts received from a plan that allows the employee to

 

set the amount of compensation to be deferred and does not

 

prescribe retirement age or years of service. These plans include,

 

but are not limited to, all of the following:

 

     (A) Deferred compensation plans under section 457 of the

 

internal revenue code.

 

     (B) Distributions from plans under section 401(k) of the

 

internal revenue code other than plans described in subdivision

 

(a)(iv).

 

     (C) Distributions from plans under section 403(b) of the

 

internal revenue code other than plans described in subdivision

 

(a)(iii).

 

     (ii) Premature distributions paid on separation, withdrawal,

 

or discontinuance of a plan prior to the earliest date the

 

recipient could have retired under the provisions of the plan.

 

     (iii) Payments received as an incentive to retire early unless

 

the distributions are from a pension trust.

 

     (9) In determining taxable income under this section, the

 

following limitations and restrictions apply:

 

     (a) For a person born before 1946, this subsection provides no

 

additional restrictions or limitations under subsection (1)(f).

 

     (b) Except as otherwise provided in subdivision (c), for a

person born in 1946 through 1952, the sum of the deductions under

 

subsection (1)(f)(i), (ii), and (iv) is limited to $20,000.00 for a

 

single return and $40,000.00 for a joint return. After that person

 

reaches the age of 67, the deductions under subsection (1)(f)(i),

 

(ii), and (iv) do not apply and that person is eligible for a

 

deduction of $20,000.00 for a single return and $40,000.00 for a

 

joint return, which deduction is available against all types of

 

income and is not restricted to income from retirement or pension

 

benefits. A person that takes the deduction under subsection (1)(e)

 

is not eligible for the unrestricted deduction of $20,000.00 for a

 

single return and $40,000.00 for a joint return under this

 

subdivision.

 

     (c) Beginning January 1, 2013, for a person born in 1946

 

through 1952 who receives retirement or pension benefits from

 

employment with a governmental agency that was not covered by the

 

federal social security act, chapter 531, 49 Stat. 620, the sum of

 

the deductions under subsection (1)(f)(i), (ii), and (iv) is

 

limited to $35,000.00 for a single return and, except as otherwise

 

provided under this subdivision, $55,000.00 for a joint return. If

 

both the husband and wife filing a joint return receive retirement

 

or pension benefits from employment with a governmental agency that

 

was not covered by the federal social security act, chapter 531, 49

 

Stat. 620, the sum of the deductions under subsection (1)(f)(i),

 

(ii), and (iv) is limited to $70,000.00 for a joint return. After

 

that person reaches the age of 67, the deductions under subsection

 

(1)(f)(i), (ii), and (iv) do not apply and that person is eligible

 

for a deduction of $35,000.00 for a single return and $55,000.00

for a joint return, or $70,000.00 for a joint return if applicable,

 

which deduction is available against all types of income and is not

 

restricted to income from retirement or pension benefits. A person

 

who takes the deduction under subsection (1)(e) is not eligible for

 

the unrestricted deduction of $35,000.00 for a single return and

 

$55,000.00 for a joint return, or $70,000.00 for a joint return if

 

applicable, under this subdivision.

 

     (d) For a person born after 1952 who has reached the age of 62

 

through 66 years of age and who receives retirement or pension

 

benefits from employment with a governmental agency that was not

 

covered by the federal social security act, chapter 532, 49 Stat.

 

620, the sum of the deductions under subsection (1)(f)(i), (ii),

 

and (iv) is limited to $15,000.00 for a single return and, except

 

as otherwise provided under this subdivision, $15,000.00 for a

 

joint return. If both the husband and the wife filing a joint

 

return receive retirement or pension benefits from employment with

 

a governmental agency that was not covered by the federal social

 

security act, chapter 532, 49 Stat. 620, the sum of the deductions

 

under subsection (1)(f)(i), (ii), and (iv) is limited to $30,000.00

 

for a joint return.

 

     (e) Except as otherwise provided under subdivision (d), for a

 

person born after 1952, the deduction under subsection (1)(f)(i),

 

(ii), or (iv) does not apply. When that person reaches the age of

 

67, that person is eligible for a deduction of $20,000.00 for a

 

single return and $40,000.00 for a joint return, which deduction is

 

available against all types of income and is not restricted to

 

income from retirement or pension benefits. If a person takes the

deduction of $20,000.00 for a single return and $40,000.00 for a

 

joint return, that person shall not take the deduction under

 

subsection (1)(f)(iii) and shall not take the personal exemption

 

under subsection (2). That person may elect not to take the

 

deduction of $20,000.00 for a single return and $40,000.00 for a

 

joint return and elect to take the deduction under subsection

 

(1)(f)(iii) and the personal exemption under subsection (2) if that

 

election would reduce that person's tax liability. A person that

 

takes the deduction under subsection (1)(e) is not eligible for the

 

unrestricted deduction of $20,000.00 for a single return and

 

$40,000.00 for a joint return under this subdivision.

 

     (f) For a joint return, the limitations and restrictions in

 

this subsection shall be applied based on the age of the older

 

spouse filing the joint return.

 

     (9) (10) As used in this section, "oil and gas" means oil and

 

gas that is subject to severance tax under 1929 PA 48, MCL 205.301

 

to 205.317.