The Michigan Department of Treasury has issued a new Form MI W-4P (Withholding Certificate for Michigan Pension or Annuity Payments) for 2012 for recipients of retirement payments to fill out and furnish to the payer to use in withholding Michigan personal income tax on distributions. Tax withholding on retirement payments is new for Michigan for 2012 and the early version of the new Form MI W-4P had to be withdrawn and changed after the state’s Supreme Court ruled that basing taxability on total “household resources” – which was going to be one segment of the calculation of the taxable portion of retirement payments – was in conflict with a provision of the state constitution. So, the Department of Treasury withdrew the first version of the MI W-4P, and has now made a revised MI W-4P available at http://www.michigan.gov/documents/taxes/4924_365368_7.pdf.
The Michigan DOT has also revised the new 2012 Pension Withholding Guide to conform to the Supreme Court ruling. The revised guide is available at http://www.michigan.gov/documents/taxes/2012_Pension_Withholding_Guide_365268_7.pdf.
As specified in the MI W-4P, companies over which Michigan has taxing jurisdiction are required to withhold Michigan tax from pension or annuity payments beginning January 1, 2012. If the pension administrator does not fall under Michigan jurisdiction, Michigan withholding is not required but the payer may perform voluntary withholding if requested by the recipient and agreed to by the payer.
Taxability under the new Michigan law is being phased in according to the birth year of the recipient. For married joint filers each of whom is receiving pension benefits, the birth year of the older person determines the treatment.
Payments subject to the new requirements include most payments that are reported on a Form 1099-R for federal tax purposes, including defined benefit pensions, IRA distributions and most payments from defined contribution plans.