Did you know that lower-income taxpayers may be eligible for a tax credit in Michigan if the cost of heating their home and the amount of family income available does not exceed certain thresholds? This tax credit is made possible by the federal Low-Income Home Energy Assistance Program block grant received by the State of Michigan annually. Even better, a Michigan taxpayer may file to claim the home heating credit even if he or she does NOT file a Michigan Individual Income Tax Return (MI-1040) for the tax year.
A taxpayer may only claim a tax credit for heating costs related to his or her homestead, meaning the location that is the permanent home that you return to whenever you go away. MCL 206.527a(1). Therefore, you cannot claim a tax credit for temporary dwellings such as college or university housing (e.g. dormitories or residence halls), vacation homes or weekend cottages. You can claim the credit even if you rent the home (e.g. apartment or mobile home), provided that you have a valid lease agreement that requires you to pay rent to the landlord or the mobile home park.
- For purposes of the home heating credit, a "homestead" does not include an adult foster care home, nursing home, home for the aged or substance abuse center. MCL 206.527a(1).
- Only the renter or lessee may claim a credit on property that is rented or leased. Only one credit may be claimed per household. A claimant who shares a homestead with other eligible claimants shall prorate the credit by the number of claimants sharing the homestead. MCL 206.527a(11).
- A person who is a full-time student at a school, community college, or college or university and who is claimed as a dependent by another person is NOT eligible to claim the home heating credit. MCL 206.527a(11).
A claimant has to calculate the "Total Household Resources" available on MI-1040CR-7, which includes both taxable and nontaxable income. Income considered in the total household resources includes:
- All compensation you (and your spouse if filing jointly) received as an employee, including strike pay, supplemental unemployment benefits, sick pay and long-term disability benefits. Unemployment compensation, worker's compensation and VA pension benefits are also included.
- All amounts, whether gains or losses, included in your (and your spouse if filing jointly) adjusted gross income from self-employment (Schedule C), farming (Schedule F), rental income (Schedule E) and distributions from partnerships and S-corporations.
- All your (and your spouse if filing jointly) income from Social Security, Supplemental Security Income (SSI), railroad retirement benefits, annuities, retirement pension and individual retirements accounts (IRAs). For a Roth IRA, only include the portions of distributions that exceeded total contributions.
- All your (and your spouse if filing jointly) capital gains or losses from items includible on federal Schedule D. Losses claimed cannot exceed $3,000.00 (or $1,500.00 if married filing jointly). Gains from the sale of your main residence are included here even if they were excluded from federal taxation.
- All your (and your spouse if filing jointly) alimony and child support received. This also includes all payments received from the State of Michigan as a foster parent.
- Other taxable income including, but not limited to, gambling winnings over $300.00, awards and prizes over $300.00, and forgiven debt includible in federal adjusted gross income.
- Financial support paid for expenses on your behalf (e.g. rent, utilities, food) by relatives and friends, including support you received if claimed as a dependent on someone else's tax return.
- Total payments made to your household by the Michigan Department of Health and Human Services (MDHHS) and other public assistance payments such as adoption subsidies.
- Other nontaxable income including, but not limited to, non-government scholarships and grants for educational purposes, compensation from personal injury claims (whether by judgment or settlement), inheritances (unless received from spouse), life insurance proceeds (unless received on death of spouse), and the minister housing allowance.
The following items paid by you and/or reportable on your federal tax return reduce total household resources and include, but are not limited to, the following:
- Payments to IRAs, SEP, SIMPLE or other qualified retirement plans.
- Student loan interest deduction.
- Moving expenses incurred as a member of the Armed Forces of the United States.
- Self-employment tax deduction and self-employed heath insurance deduction.
- Tax penalties on early withdrawal from savings (e.g. IRA account).
- Alimony paid to a former spouse.
- Jury duty pay from your employer.
- Health savings account (HAS) and Archer medical savings account (MSA) deductions.
- Premiums paid for yourself and your family for medical insurance, dental insurance, vision insurance and prescription drug plans.
Once you have calculated your total household resources, you may compute the amount of your home heating credit by one of two methods:
STANDARD CREDIT (MCL 206.527a(1)(c)(i)).
- Compare your total housing resources against the following table for tax year 2018 to determine your standard allowance against your heating costs. Exemptions include you, your spouse and anyone who can be claimed as a dependent on your federal tax return:
- If you have 0 to 1 exemptions and your total housing allowance does not exceed $13,357, then your standard allowance is $468.
- If you have 2 exemptions and your total housing allowance does not exceed $18.129, then your standard allowance is $635.
- If you have 3 exemptions and your total housing allowance does not exceed $22,871, then your standard allowance is $801.
- If you have 4 exemptions and your total housing allowance does not exceed $27.614, then your standard allowance is $967.
- If you have 5 exemptions and your total housing allowance does not exceed $32,386, then your standard allowance is $1,134.
- If you have 6 exemptions and your total housing allowance does not exceed $37,129, then your standard allowance is $1,300.
- For each additional exemption over six, add $4,743 to total housing allowance base amount $37,129 and add $166 to standard allowance base amount $1300.00.
- IF YOUR TOTAL HOUSEHOLD ALLOWANCE EXCEEDS THE INCOME THRESHOLD, YOU ARE NOT ELIGIBLE FOR THE STANDARD CREDIT.
- If you were a part-time resident of Michigan during the tax year, you must prorate the standard allowance by the total months that you actually resided in the state.
- If you heating costs were included in the amount of rent paid, you must multiply your resulting standard credit by 50%.
ALTERNATIVE CREDIT (MCL 206.527a(1)(c)(ii)).
- Compare your total housing resources against the maximum income allowed on the following table for tax year 2018. Exemptions include you, your spouse and anyone who can be claimed as a dependent on your federal tax return:
- If you have 0 to 1 exemptions, your maximum income cannot exceed $14,472.
- If you have 2 exemptions, your maximum income cannot exceed $19,475.
- If you have 3 exemptions, your maximum income cannot exceed $24,483.
- If you have 4 or more exemptions, your maximum income cannot exceed $24,918.
- IF YOUR TOTAL HOUSEHOLD ALLOWANCE EXCEEDS THE INCOME THRESHOLD, YOU ARE NOT ELIGIBLE FOR THE ALTERNATIVE CREDIT.
- Next, calculate your total heating costs from the 12-month consecutive period immediately preceding October 31st of the tax year. The total heating costs are capped at $2,741 for the 2018 tax year.
- Multiply your total household allowance by 0.11 (if a negative number, use zero).
- Subtract the above-calculated product from your total heating costs (if a negative number, use zero).
- Take the above-calculated difference and multiply it by 0.7. This is your alternative credit amount.
You may use the larger amount of either the standard credit calculation or the alternative credit calculation to determine your total home heating credit.
Although Michigan individual income tax returns are due on April 15th, the home heating credit claim (MI-1040CR-7) is not due to the Michigan Department of Treasury until September 30th. Again, you may still file MI-1040CR-7 to claim this credit even if you do not have to file a Michigan individual return for the tax year. The size of the block grant that Michigan receives every year from the federal government can vary which can impact the size of the credit, so it pays to file as soon as possible to avoid a reduction in the amount you are legally entitled to.
If you have questions about the home heating credit or any other aspect of Michigan tax law, do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC.