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Michigan Retains Personal Exemption For State Income Tax

On February 28th, 2018, Governor Rick Snyder signed legislation into law that will retain the personal tax exemption for Michigan taxpayers. When President Trump signed the Tax Cuts and Jobs Act of 2017 (the "Act") into law last December, he enacted federal legislation that suspended personal exemptions in the Internal Revenue Code for tax years beginning after December 31st, 2017 and before January 1st, 2026. Before the Act, the personal exemption that a taxpayer would have been allowed to subtract from his adjusted gross income for the taxpayer, his spouse and any dependents on his 2018 federal return was $4,150.00 each. Michigan's income tax code also allows for personal exemptions, but the amount and manner that may be deducted in MCL 206.30(2) through MCL 206.30(7) is tied closely to whatever the current federal personal exemption is. Many observers feared that, by operation of the statutory language, the suspension of the federal personal exemption would also suspend the state personal exemption.

The new tax legislation in Michigan not only preserves the state personal exemption, but also accelerates its growth beyond what the federal rate would have allowed prior to suspension. If the Tax Cuts and Jobs Act of 2017 did not go into effect, the federal personal exemption would have reached $4,300.00 by 2021. The Michigan personal exemption will now grow at a rate to reach $4,900.00 by 2021, which is $600.00 higher than originally scheduled. That amounts to a $25.50 tax cut per individual, or $102.00 for a family of four.

The legislation also clarifies that the state personal exemption will be available for the 2018 tax year. Neither the federal legislation or the state legislation affects personal exemptions claimed for the 2017 tax year.

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