Before you file your income tax form: 6 things to know about Michigan's changes

Before you file your income tax form: 6 things to know about Michigan's changes | MLive.com
The new income tax rules impact retirement income and many different credits, such as those for certain charitable donations or for low- and medium-income families.
The changes were meant to make the tax structure "fair and efficient and address structural budget deficit that plagued the state for a number of years,” said Terry Stanton, spokesman for the Michigan Department of Treasury.
One of the biggest adjustments will reduce or eliminate the Homestead Property Tax Credit for some homeowners and renters.
The state treasury sent out informational postcards to about a half million taxpayers who are most likely to be affected by the new rules, Stanton said.
Seniors age 65 and older, taxpayers with household resources of more than $50,000 and homeowners whose property has a taxable value of more than $135,000 are most likely to be impacted.
That includes North Muskegon resident Sharon Clark, 62, who says she’s unhappy with the increased tax burden.
“This follows a new taxation on retired people’s pensions, so it’s like the people who are retired and on fixed incomes are the ones who are being slammed by this,” she said.
She also noted that some people who received the postcard didn’t understand it, and said she’s concerned for seniors and others who don’t have computers or Internet access to seek more information.
The homestead credit used to be a small portion of the tax return, but now requires a few pages that need to be filled out, said Michael Bozimowski, director of state and local tax services for Rehmann, an accounting, tax and financial planning firm with 12 locations in Michigan.
Bozimowski recommended people talk to their tax preparers early in order to gain a better understanding.
“The law has changed. It’s now a fact of life we have to deal with,” he said. “Communication and preparation, not just of the return, but of the impact, is going to be key on an individual basis.”
Free volunteer-based tax preparation is available to low- and moderate-income taxpayers. Michigan State University offers free services, along with several West Michigan colleges and universities.
Information about free e-filing options is available at www.mifastfile.org.
Here are some of the key components of the tax changes with a short description. A full explanation can be found on at www.michigan.gov/taxes.
Tax rate:
Michigan reduced its income tax rate from 4.35 to 4.25 percent in October 2012. The annualized income tax rate for 2012 is 4.33 percent and applies to all income received last year.
Exemptions:
The personal exemption was increased from $3,700 to $3,763 for 2012. It will increase to $3,900 for the 2013 tax year. The following exemptions are no longer allowed: special exemption for seniors, $600 for children age 18 and younger, and unemployment compensation greater than half of adjusted gross income.
Homestead Property Tax Credit:
The maximum $1,200 credit is no longer available to homes with a taxable value greater than $135,000. That cap does not apply to rented homesteads.
Previously, taxpayers could claim a credit if their household income was $82,650 or less. Now, taxpayers with household resources (which includes more than just income) totaling more than $50,000 will no longer receive the credit. Credits are reduced for households with resources ranging from $41,001-$50,000.
Seniors can receive the full credit if their household resources are no more than $21,000. The credit would be reduced by 4 percent for each additional $1,000 in household resources up to $30,000. Senior claimants can receive 60 percent of the credit if they have resources of $30,000 to $41,000. After that, the phase out applies. A full explanation can be found here.
Retirement changes:
Pension income taxes are based on age, and joint filers go by the age of the older person.There is no change for taxpayers born before 1946. For filers born before 1946, public pensions will continue to be exempt from income taxes, and for private pensions they can subtract up to $47,309 for single filers and $94,618 for joint filers.
Taxpayers born between 1946 and 1952 receive a smaller pension tax exemption of $40,000 for joint filers and $20,000 for single filers. They can no longer exempt public pensions or subtract for interest, dividends and capital gains.
Taxpayers born after 1952 will pay taxes on all pension income, except for Social Security and military pensions. There are certain exemptions or subtractions allowed once taxpayers turn 67. See a full explanation here.
Earned Income Tax Credit:
The Michigan Earned Income Tax Credit for low- and medium-income individuals and families is reduced from 20 percent of the federal credit to 6 percent. The average credit will drop 70 percent from $439 to $132, according to the Michigan League for Public Policy.
Other tax credits:
Non-refundable tax credits for the following expenses are no longer allowed: college tuition and fees, city income taxes, automobile donations, public contributions, donations to homeless shelters, food banks, community foundations and the Family Development Program, and contributions to medical savings accounts. Refundable credits are no longer allowed for excess adoption expenses or stillbirths.